C. Achuthan, Presiding Officer
1. Both the appeals are directed against the common order dated 2.1.2002 made by Respondent No.1 disposing of the Appellants' application seeking certain details in the context of an investigation ordered into the alleged market manipulation in the shares of a company viz. Amara Raja Batteries Ltd., (ARBL). Taking into consideration that the issues to be considered in both the appeals are common and the counsel appearing for the parties are also common, the appeals were heard together and a common order is passed.
2. The Appellants have described themselves as investors in shares and securities. They trade through brokers on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Respondent No.1 is the Chairman of Respondent No.4. He is also empowered to exercise the powers vested in Respondent No.4. Respondents 2 and 3 are officers of Respondent No.4. Respondent No.4 is a statutory body established under the Securities and Exchange Board of India Act, 1992 (the Act), mandated to protect the interests of investors in securities and to promote the development of and to regulate, the securities market.
3. The sequence of events leading to the filing of the present appeals, as could be culled out from the records are briefly as follows:
Trading on the stock market marked a huge upswing on 28th February and 1st March, 2001, following the presentation of the Union Budget. However, the boom did not last long. The market nose dived in the days followed for no sound reasons. There was a lot of general concern as to the cause of the market collapse. The authorities suspected foul play. The Respondents initiated investigation into the matter. They also resorted to certain measures with a view to arrest further fall in the price of securities and contain the market volatility. The Respondents, on 5th March, 2001, took the following risk management measures viz. (i) the threshhold limit for applicability of the volatility margin reduced from 80% to 60% (ii) exemption from the applicability of volatility margin not allowed to any class of investors (iii) imposed additional margin @ 10% on end of the day's net outstanding position on all the scrips in MCFS/ALBM and BLESS. However, the drift continued. On 7.3.2001 the Respondents directed that all sales transactions from 8.3.2001 should be backed by delivery unless a sale transaction is preceded by a purchase position of atleast an equivalent amount in the name of the same client with the same or any other exchange. This was also made applicable to proprietory trading by members. The Appellants were stated to be trading largely in the shares of ARBL, that on March 9, 2001 the closing rate of the shares of ARBL on BSE was Rs.308.40 per share at 2 P.M., when BSE had closed for the purpose of trading earlier than the normal hours on the eve of Holi, that during the period between 3 P. M. to 4.05 P.M. when the NSE was still open for trading, on account of some heavy selling the scrip price of ARBL dropped to Rs.266.75 per share, that for 8 consecutive trading sessions from March 9, 2001 there was a circuit of 16% at the lower end in the aforesaid scrip on both the exchanges that the rate of the scrip went down from Rs.320 to Rs.80 during this period, that the abnormal fall in price of ARBL shares was attributed to short selling by the members of BSE and NSE in violation of the risk management measures put in place by the Respondents and that according to the Appellants, as a result of the market upheaval they suffered huge loss.
4. The Appellants wrote few letters to BSE, NSE and to the Respondents complaining about the conduct of certain brokers, in particular about their action in defiance of the risk management measures taken by the Respondents and demanding action against the errant brokers. Since the Appellants did not get any positive response from them, they filed Writ Petition No.845 of 2001( dt. 7.4.2001) in the Hon'ble Bombay High Court inter alia, seeking relief of annulment of the short sales and or fictitious dealings effected in the shares of ARBL and to direct SEBI, BSE and NSE to furnish "complete details of all the trade/transactions entered into the shares of ARBL by brokers of BSE and NSE" during the period specified therein. The Hon'ble High Court dismissed the said Writ Petition by its order dated 9.4.2001, inter alia observing that:
" The matter is still at the stage of investigation and the question of supplying any information to the Petitioner or any other complainant does not arise at this stage. The Petitioner may, if so advised, apply to SEBI after the investigation is complete for copies of necessary documents and other information and if such an application is made, SEBI will consider the same in accordance with law and pass appropriate orders. Similarly, the Petitioner's prayer for direction to Exchanges to supply the information cannot be accepted as the SEBI is seized of the matter"
5. Pursuant to the said order the Appellants made several representations to BSE, NSE and SEBI requesting them to furnish the details and information which the Appellants considered necessary to prove the case of annulment of trades. It is seen that the Appellants vide letter dated 11.4.2001 addressed to the Respondents, had inter alia requested them for exercising powers under section 11B of the Act and also for (a) providing the details of sales without requisite margins, short sales and/or fictitious dealings effected by certain members/brokers of BSE and/or NSE and/or their constituents in respect of the shares of ARBL during the period from 6th March, 2001 onwards (b) directing annulment of such illegal trade bargains in view of Bye-law Nos. 193 and 357 of BSE, Bye-law Nos. 5(a) and 5(b) of NSE, and section 11B of the Act since the said short sales and/or fictitious dealings are in contravention of the directives given by the Respondents on 5.3.2001 and 7.3.2001. The Appellants did not get from the Respondents the details asked for by them. Subsequently Appellants were served with 2 show cause notices by the Respondents. These show cause notices are dated 11.7.2001 and 27.7.2001. Notice dated 11.7.2001 alleged that the Appellants had indulged in buying and selling of abnormal volumes of ARBL scrips with a view to creating artificial market in the scrip and in the context asked to show cause as to why criminal prosecution in terms of section 24(1) of the Act read with regulation 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 1995 (the 1995 Regulation) should not be launched against them. The second notice dated 27.7.2001 alleged that the trading by Appellants in the scrips of ARBL resulted in creation of false market for ARBL shares and artificially raising the price of the said scrip and in the context asked them to show cause as to why directions restraining them from further dealing in the securities and other direction as deemed fit in the facts and circumstances of the case should not be passed against them under regulation 11 read with regulation 12(a) of the 1995 Regulations. The Appellants responded to the said 2 notices in their letters dated 19.7.2001 and 10.8.2001 respectively, requesting the Respondents to furnish the details as sought by them in their letter dated 11.4.2001 and also to provide a copy of the relevant investigation reports to enable them to answer the said show cause notices. The Appellants did not get any response from the Respondents. The Appellants wrote a letter to the Respondents on 20.8.2001, enumerating the details sought by them. The details sought for are as under:
(1) Purchase position actually held by brokers and sub brokers acting on behalf of the Appellants as on March 9, 2001 and March 12, 2001 and the amounts of margin monies lying with them as indicated by them to SEBI and shares of ARBL also lying with them as collateral securities.
(2) The entire trades in the scrip of ARBL during the period between March 5, 2001 to March 23, 2001 on BSE and during the period between March 7, 2001 to March 20, 2001 on NSE along with trade time and order numbers.
(3) Details of all the market participants claiming to be arbitrageurs during the aforesaid period on BSE & NSE.
(4) Details of the dematerialized accounts of all the constituents who have sold the shares of ARBL as on March 8, 2001 since the ban on naked short sales was imposed.
(5) Details of the pay-ins accepted by NSE for Settlement No.10 and by the BSE for Settlement No.50 & 51 from their respective brokers
(6) Details of the pay-outs (including the dates when the same were (declared) enacted to various brokers for Settlement No.10 of NSE and Settlement Nos. 50 & 51 of BSE.
(7) Details of the actual number of shares of the defaulted brokers which are lying with the depositories of both the Exchanges.
(8) Copies of interim reports of BSE & NSE as submitted to SEBI
(9) SEBI's own interim report, if any.
(10 Pattern of holding and in particular details of OCB holdings in ARBL as on September 1, 2000 March 5, 2001 and April 7, 2001
(11)Details of all trades in ARBL conducted by Appellants' brokers and sub- brokers on either of the Exchanges since September, 2000 or from the date of commencement of trade on their respective broking identities.
(12) List of short sellers on BSE in settlement Nos.50 & 51 and settlement No.10 on NSE.
6. The Appellants sent several reminders. Except a copy of the Appellants' own statement recorded by the Respondents, no further material was furnished. The Respondents called the Appellants for a personal hearing more than once, but they did not appear stating that since the requisite details were not furnished no purpose would be served by appearing before the Respondents. The Appellants filed a Writ Petition No.2737/2001 (dated 3.11.2001) in the Hon'ble Bombay High Court praying inter alia :
to direct the respondent Nos. 1, 2 and 3 (in the W. P.) to furnish complete details of all the trades and/or transactions entered into the shares of ARBL by all the member-brokers of respondent No.2 (BSE) on or after March 5, 2001 till March 23, 2001 (for Settlement Nos. 50, 51 and 52) and the member-brokers of respondent No.3 (NSE) on and after March 7, 2001 till March 20, 2001 (for Settlement Nos. 10 and 11) and the details of dematerialised account of all their constituents as on the dates on which they entered into sale transactions for the aforesaid settlements of the said ARBL either at BSE or at NSE and such detail/material which will be relevant in the aforesaid investigation to prove the Petitioner's case;
7. On 10.12.2001 Respondent No.2 wrote a letter to the Appellants advising them to satisfactorily explain as to how the documents/details sought by them in their letter dated 20..8.2001 are relevant for the purpose of the proceedings, to enable the Respondents to determine the relevancy or otherwise of the documents. By the same letter the Appellants were advised to appear for the next hearing before Respondent No.1 on 27.12.2001. The Writ Petition No.2737/2001 filed by the Appellants was disposed of by the Hon'ble Bombay High Court vide its order dated 19.12.2001 inter alia observing that "Mr. Kumar Desai, learned counsel appearing for the SEBI stated that the petitioner's application for inspection of documents is under consideration of SEBI and SEBI has fixed hearing of the said application on 27.12.2001. Mr. Desai stated that the SEBI will hear and dispose of the said application within a period of one week after hearing is concluded." The Appellants, appeared before Respondent No.1 on 27.12.2001 and also filed written submission before him vide letter dated 27.12.2001. Thereafter Respondent No.1 passed the impugned order The operative portion of the order is as under:
"Chairman, SEBI perused the written submission filed by them and all other materials on record. Your request for inspection of documents has been carefully examined by the Chairman SEBI, and the findings with respect to the relevancy of these documents as decided by the Chairman, SEBI are as under:
"By Item No.1 of the letter dated August 20, 2001, you wanted to know purchase positions actually held by brokers and sub-brokers acting on your behalf as on March 9, 2001 and March 12, 2001 and the amounts of margin monies lying with them as indicated by them to SEBI and shares of Amara Raja Batteries Ltd., (ARBL) also lying with them as collateral securities. These are the information which should be within the knowledge of you as what you are seeking is the purchase position of brokers on your own account. As a purchaser of securities, you must be aware of the qty of shares which you are purchasing for yourself. Similarly the margin money which you are required to deposit with the broker should also be within your knowledge, therefore you are seeking for data for which you must be having knowledge in view of your trades with the brokers. As regards the dealings of your brokers in the scrip of ARBL for other clients, this is not being furnished to you as the same is not relevant in the present proceedings against you and also furnishing the same would possibly violate the client confidentiality agreement, the brokers had with their respective customers. By item No.2 you wanted to know the entire trades in the scrip of ARBL during the period between March 5, 2001 to March 23, 2001 on the BSE and during the period between March 7, 2001 to March 20, 2001 on the NSE along with trade time and order numbers. The same are considered not relevant in connection with the Show cause notice issued to you and, therefore, your request for these data is rejected by the Chairman, SEBI. Your requests for Item Nos. 3 to 8 & 10 to 12 seeking details of all the market participants, dematerialised accounts of all the constituents, details of pay-in at NSE of all the brokers etc. BSE & NSE report etc. are not considered relevant in connection with the SCN issued to you and therefore request for this data is rejected by the Chairman. Your request for Item No.9 i.e. SEBI's investigation report is considered relevant and the extracts from the investigation report in so far as it concerns you, is enclosed herewith. Please note that no documents will be relied upon without giving you a copy of the same and without giving you an opportunity to explain the contents thereof.
You had written to SEBI letter dated April 11, 2001 to SEBI (as per Exhibit V in W rit Petition No.2737/2001) and requested, interalia, SEBI to exercise powers under section 11B of SEBI Act, 1992 with regard to the alleged price manipulation in the scrip of Amara Raja Batteries Ltd. When action is taken by SEBI to find out the market manipulators including you, you are now fighting shy of the same and did not reply to the SCN dated July 27, 2001 so far.
In view of the aforesaid, you are advised to submit your explanation to the Show cause notice dated July 27, 2001 within 30 days from the date of this order failing which it will be presumed that you have no explanation to offer and the matter shall be further proceeded with."
8. The Appellants claiming to be aggrieved by the said order have filed the present appeals praying that the impugned order dated 2.1.2002 be quashed and set aside and direct the Respondents to furnish the details as sought by the Appellants vide letter dated 20.8.2001 addressed to the Respondent No.2. They have also prayed that the show cause notices dated 11.7.2001 and 27.7.2001 issued by Respondent Nos. 3 and 2, respectively be stayed pending the disclosure of documents/details sought by the Appellants.
9. Even though the Appellants had prayed for an interim order and the matter was listed on 7.2.2002, the Appellants' representative did not press the prayer, as the Respondents had agreed to file their reply without any undue delay paving the way for early disposal of the appeals. Though the appeals were posted on 18.3.2002 the matter was adjourned to 9.4.2002 and again to 18.4.2002 at the request of the Appellants. On 18.4.2002 when the matter was called, the learned counsel for the Respondents submitted that he would like to file an affidavit in a couple of days stating the documents/material which the Respondents are willing to provide to the Appellants and the reasons for their inability to make available the rest of the documents/material if any, as it may narrow down the dispute.. The appeals, taking into consideration the convenience of the counsel for the parties, were posted for hearing on 30.4.2002 which was again adjourned to 12.6.2002 at the request of the counsel for the parties. The Respondents have filed a combined reply. The affidavit as promised by the Respondents' counsel was filed on 30.4.2002. The Appellants have filed rejoinder to the reply and also an affidavit in rejoinder to the Respondents' affidavit dated 30.4.2002.
10. Shri Janak Dwarkadas, learned senior counsel appearing for the Appellants explained in detail the background of the case and the position of the Appellants as investors/traders in the securities of ARBL and also the sequence of events in the market from 6.3.2001 and the related consequences thereof on the Appellants. He submitted that certain unscrupulous brokers acted in flagrant defiance of the risk management measures put in by SEBI and damaged the market and brought grief to the Appellants.
11. Learned senior counsel referred to various letters written by the Appellants to the Respondents requesting them to take action against the errant brokers and provide them details and materials relating to sales without requisite margins, short sales/ or fictitious dealings, effected by certain member brokers. In this context he referred to the abnormal and unprecedented movement in the share price of ARBL from Rs.320/- per share to Rs.80/- per share within a span of 8 trading days in a regime which prohibited short sales. Shri Dwarkadas, in this context referred to the SEBI circular dated 7.3.2001 forming part of the appeal, and submitted that the transaction in the settlement periods involved i.e. from March 5, 2001 till March 23, 2001 (Settlement Nos. 50, 51 and 52 of BSE) and from March 7, 2001 till March 20, 2001 (Settlement Nos. 10 and 11 of NSE) were amenable to the risk management measures put in position by the Respondents. He submitted that during these settlements, the Appellants had a purchase position, that there was sales also, but the Appellants have not bothered to find out who were selling. He submitted that purchase and sale of scrips depends on individual perception. Shri Dwarkadas stated that the buyer places purchase order and it is for the seller to ensure delivery, that if subsequently the buyer finds that the seller had no shares to deliver, then the buyer cannot be held responsible for the same. He submitted that the Appellants were buying shares under the genuine belief that the seller would deliver the shares that the people around knew the Appellants' purchase position and they took advantage. Shri Dwarkadas referred to the transaction dates and stated that it is on record that some of the brokers viz. Sheth, Trimbak, Satco etc. had short sold, that short selling in ARBL scrips was rampant at that point of time was not unknown to the Respondents. He submitted that it is absolutely necessary that to defend the Appellants' case, the Respondents should furnish all the details relevant to the case that the Respondents' posture denying such material information is untenable, that the Respondents have ignored that their primary duty is to protect the interests of investors and not to make genuine investors scapegoats, as has been done in the case of the Appellants.
12. Shri Dwarkadas submitted that the Respondents seem to have misunderstood the concept of "relevancy" and "admissibility" of material sought by the Appellants. Learned counsel submitted that the test of "relevancy" is as to whether it will be of help to a party to advance his case or destroy other's case. In this context he stated that the show cause notices issued to the Appellants allege market manipulation by them, which is a serious charge visiting with serious consequences. He submitted that it is in the said context the Appellants asked for the details as set out in their letter dated 20.8.2001 addressed to the Respondents and each material/document referred to therein is vital to the Appellants for their defence. He submitted that it cannot be said on any ground that these particulars are not relevant to the inquiry proceedings initiated against the Appellants. Learned senior counsel referred to the order dated 19.12.2001 passed by the Hon'ble Bombay High Court in W.P. No,.2737/2001 and stated that the Writ was disposed of in the light of the statement made on behalf of SEBI by its Counsel that the SEBI will hear and dispose of the Appellants' application seeking details/materials, by passing a reasoned order within a period of one week after hearing is concluded. Shri Dwarkadas referred to the finding recorded in the impugned order with respect to the relevancy of the documents sought for by the Appellants and submitted that the Appellants wanted to know the purchase position actually held by the concerned brokers and sub brokers on the Appellants' behalf as on March 9, 2001 and March 12, 2001 and the amounts of margin monies lying with them and shares of ARBL lying with them as collateral securities as the information is crucial to the Appellants to prove their innocence. He stated that the details of margin as called for are also very relevant as the margin will indicate as to whether the trade undertaken by the particular person was genuine or not. He submitted that the Appellant's main grievance is that some of their brokers duped them and it is in that context they wanted to know the details relating to the dealing by the brokers, and the Respondents' not giving those details claiming that furnishing the details would violate the client confidentiality agreement the broker had with their respective customers is untenable, that client confidentiality protection is not available in an inquiry proceeding like the present one. Shri Dwarkadas submitted that the Respondents have conveniently forgotten that the particulars have been sought by the Appellants who are facing enquiry initiated by the Respondents and the particulars are relevant to the inquiry and the particulars are available with them. He submitted that the Respondents have denied the said information not based on the relevancy aspect, but on confidentiality. In this context he referred the decision of the Hon'ble Supreme Court in M. L. Sethi Vs R. P. Kapur (AIR 1972 SC 2379)) He cited particularly the following portion from the said decision - "Nor do we think that the High Court was right in holding that the documents ordered to be discovered was not relevant to the inquiry. The documents sought to be discovered need not be admissible in evidence in the enquiry or proceedings. It is sufficient if the documents would be relevant for the purpose of throwing light in the matter in controversy. Every document which will throw any light on the case is a document relating to a matter in dispute in the proceedings, though it might not be admissible in evidence. In other words, a document might be inadmissible in evidence yet it may contain information which may either directly or indirectly enable the party seeking discovery either to advance his case or damage the adversary's case or which may lead to a trail of enquiry which may have either of these two consequences." Shri Dwarkadas submitted that the legal position as explained in the cited case has been ignored by the Respondents.
13. Learned senior counsel submitted that even some of the crucial material information relied on by the Respondents, though claim to have furnished have not been furnished. In this connection he referred to the data furnished by the Respondents and the one cited in the show cause notice. By way of illustration he stated that as per the Respondents' data the Appellants' outstanding position in BSE in Settlement No.A 51 was 819468, that in the show cause notice dated 27.7.2001 the figure has been shown as 402930 and in the trading details furnished by the Respondents on 2.1.2002 the comparable figure is 11,84,468.
14. Learned senior counsel submitted that the Appellants have been unjustifiably subjected to enquiry and have been denied of their legitimate right to get the material based on which the charges have been levelled. He stated that the Appellants have clearly explained in their letter dated 27.12.2001 to the Respondents, the relevance of each and every document/material sought for from the Respondents in the letter dated 20.8.2001. He submitted that the Respondents have not given any worth while justification to hold back the material from the Appellants, that the affidavit filed by the Respondents in this regard does not in any way justify their action. Shri Dwarkadas submitted that the Respondents have already filed criminal prosecutions against the Appellants as threatened in the show cause notice dated 11.7.2001, without even waiting for the reply thereto from the Appellants.
15. Learned counsel submitted that the ratio in L & I Rapaport cited by the Respondents' counsel has no application to the case in view of the distinguishable features.
16. Learned counsel submitted that the Appellants are seeking details in the context of the events which followed the risk management measures which were in force from 5.3.2001, that the Appellants have been subjected to heavy loss because of the short sale effected by some other brokers, that instead of protecting the Appellants, the Respondents have chosen to proceed against the Appellants -- the victims of market manipulation -- ignoring the villains who manipulated the market.
17. Shri T. N. Subrahmanian, learned counsel appearing for the Respondents explained briefly the sequence of events leading to the issuance of the impugned order. He submitted that the Respondents had received a complaint on 16.3.2001 from a broker of NSE alleging that their client Shri Harinarayan Bajaj had failed to meet his pay in obligations towards his dealings in the shares of ARBL, that the Appellants had also written to the Respondents alleging that there was heavy short selling in the scrip of ARBL resulting in sharp fall in the price. He stated that the Respondents initiated investigation vide its order dated 27.4.2001 into the alleged price manipulation in the scrip of ARBL and violation of the 1995 Regulations and SEBI Stock Broker Regulations, that the Respondents also investigated the role played by various persons including the Appellants in connection with the price manipulation, and based on the material so collected, show cause notices were issued to the Appellants seeking their explanation. He submitted that though the proceedings before the Respondents are yet to be concluded, the Appellants have rushed to the Tribunal with the present appeal. He submitted that the present appeal is premature as the Appellants have not answered the charges in the pending enquiry proceedings.
18. Shri Subrahmanian submitted that the Appellants, as could be seen from their letter dated 20.8.2001, are interested in details relating to the trade/position of other brokers who had dealt in the shares of ARBL. In this connection he referred to the affidavit filed by the Respondents on 3.4.2002 and cited the explanation provided therein with reference to each and every item of the details/materials sought vide the said letter. He stated that during the course of investigation carried out by the Respondents, various information was sought for by them from the Appellants, and based on the information so given, and taking into account the investigation report, show cause notices were issued to the Appellants. He submitted that the Respondents are liable to give inspection or details of only those documents which are being relied upon by them in support of their show cause notice. Learned counsel stated that most of the details are based on information given by the Appellants that the basis of the information given by the Appellants is entirely within their knowledge that much of what is sought for is with a view to delay the proceedings and/or are in the nature of a fishing enquiry for purposes other than the show cause notice. Shri Subrahmanian explained the Respondents' point of view with reference to the relevancy of the material sought by the Appellants, as stated in the affidavit. It has been stated by the Respondents in their affidavit that they are willing to furnish the following documents and particulars to the Appellants:
"2. Without prejudice to what is hereinbefore and hereinafter set out contention that the Appellants are not entitled to any inspection, SEBI is willing to furnish the following documents and particulars to the Bajaj's only with a view to avoid any delay.
(i) Information relating to the volumes in the scrip at page 1 of the show cause notice is provided herewith marked as Annexure - "1".
(ii) Though this is a public information and easily procurable and would thus be available with the Bajaj's who regularly deal in the share market extensively. Letter written by the Bajaj's respectively both dated 20th August 2001 which is Exhibit "X" in Appeal No.1 of 2001 and Exhibit No."L" in appeal No.2 of 2001. At pages 115 to 117 of the Appeal Paper in Appeal No.1 of 2001 and pages 90 to 92 in Appeal No.2 of 2001 trading details have been set out on the basis of information supplied by the Bajaj's . The basis of the allegation that trading has accounted for the permissible 30% is based on a chart and a Table which is provided to the Bajaj's herewith marked as Annexure - "2".
The information relating to delivery and pledge with banks is derived from information furnished by the Bajaj's to SEBI.
(iii) Ananlysis on the basis of representative data for shifting from exchange to another being relied upon is also being provided herewith marked as Annexure _"3".
(iv) Copy of the statement furnished by the Bajaj's about the source of funds relied on by SEBI is lready provided to the Bajaj's.
(v) Price data analysis of ARBL which is being relied on is also given herewith which is marked as Annexure _ "4"
3. Without prejudice to what is set out hereinbefore and hereinafter I shall deal item wise with the said letter dated 20th August, 2001. Much of what is sought for by the Bajaj's are within the personal knowledge of the Bajaj's themselves. It is further submitted that the scope of the show cause notice is related only to the abnormal rise in the price of ARBL. This would be a relevant factory to be borne in mind whilst considering the present Appeals.
4. In so far as item No.2 of the letter dated 20th August, 2001 is concerned, it must be borne in mind that the investigation by SEBI relates to the rise in the price of ARBL and the show cause notice is also issued only in that light.
Hence what is sought for in item No.2 is neither relevant nor appropriate for the present show cause notice. Further trade in a scrip of ARBL during the period August 2000 to 12th March, 2001 on BSE and during the period August 2000 to 12th March, 2001 on NSE along with trade times and order numbers relevant for the present show cause notice are being provided to them without prejudice to the contention that they would not be entitled to the same in law. However with a view to expedite the inquiry, the same is being already provided to them in the Annexures. (instead of giving particulars of dates and proceedings, we will give only representative data based on which we have issued notice.). So far as order numbers and trade time is concerned for the specific events for inspection of the relevant documents in that behalf as relied upon by SEBI may be taken at SEBI's office with prior appointment.
5. As regards item No.3, of the said letter dated 20th August, 2001 is concerned it is purely a fishing inquiry. SEBI is not even relying upon the period which Bajaj's are seeking to bring into focus. The relevant dates/period which form the basis of the investigation and the show cause notice are as under:
August 2000 to 12th March, 2001. For these dates, information would be available with Stock Exchanges and is easily accessible to Bajaj's. In any event SEBI is not in a position to breach the confidentiality of the arbitrageurs as various market participants would be part of the arbitrageurs and hence providing the said information would be in breach of confidentiality and the Appellants are therefore not entitled to the same.
6 So far as Item No.4 of the said letter dated 20th August, 2001 is concerned it is confidential and cannot be given. Even depository participants are bound to keep this information as confidential. Hence the Bajaj's are not entitled to this information. In any event the same is not relevant to the present show cause notice.
7. So far as Item No.5 of the said letter dated 20th August 2001 is concerned Pay-ins of the brokers are also irrelevant and are not being relied upon by SEBI
8. So far as Item No.6 of the said letter dated 20th August, 2001 is concerned Details of Pay out of brokers are also irrelevant and not being relied upon by SEBI.
9. So far as Item No.7 of the said letter dated 20th August, 2001 is concerned, this information is confidential as it relates to other market participants.
10. So far as Item No.8 of the said letter dated 20th August, 2001 is concerned SEBI has not relied upon, these reports for the purpose of show cause notice.
11. So far as Item No.9 of the said letter dated 20th August, 2001 is concerned as the interim report has not been relied upon, relevant extract of the final report which has been directed to be given, has already been provided along with the impugned order,
12. So far as Item No.10 of the said letter dated 20th August, 2001 is concerned this is a fishing inquiry for his own purpose, SEBI is neither concerned with it nor is relying upon any such details.
13. So far as Item No.11 of the said letter dated 20th August 2001 is concerned this information is within the Bajaj's knowledge. Further information is sought for periods which is far beyond the periods in relation to which show cause notice has been issued by SEBI. Details of the Bajaj's own brokers are completely within the Bajaj's own knowledge. So far as the details of trade conducted by brokers, the same is not information on which SEBI is relying upon for the purpose of the present show cause notice.
14. So far as Item No.12 of the said letter dated 20th August, 2001 is concerned again this is a fishing inquiry There is no such charge of short sale in the show cause notice and hence is completely irrelevant with the issue at hand. I say and submit that the inquiry made by Bajaj's is not relevant to the show cause notice. The documents provided herein substantially covers what SEBI relies upon for the purpose of the present inquiry and Bajajs are not entitled to any of the other documents or inspection of the same. If they wish to rely upon the same as part of their defense it is for the Bajaj's to produce the same. It is not permissible for the Bajaj's to make fishing enquiry, and cannot ask SEBI to produce documents on which they do not rely upon"
19. Shri Subrahmanian submitted that the Appellants have made a rather strange demand that the Respondent should provide material to them to further their case in matters outside the scope of the show cause notice. He submitted that the subject matter under inquiry, as could be seen from the show cause notice is not the price fall. The subject matter is the role/conduct of the persons whose dealings resulted in market manipulation. Shri Subrahmanian submitted that the Appellants had dealt with about 30 brokers. The Respondents have initiated proceedings against all those who were found prima facie indulged in market manipulation in trading in ARBL.shares. He stated that in the cases referred to by the Appellants such as "Sheth" and "Satco", the Respondents have completed inquiries. He submitted that since the role of each entity is under scrutiny, separate investigations have been initiated and the question of furnishing information collected in one enquiry, to a noticee in another enquiry, cannot be considered, unless it is really relevant to the other enquiry as well,
20. Learned counsel refuted the Appellants' contention that the Respondents have failed to comply with the Hon'ble High Court's order in W P No.845/2001 and 737/2001. He submitted that the Respondents have fully complied with the Court's directions as could be seen from the impugned order itself. The Appellants' request for the details/materials was considered by the Respondent No.1 taking into consideration the oral as well as the written submissions made by them before him on 27.12.2001 and he has given a reasoned order.
21. Shri Subrahmanian further submitted that the Appellants' request for information at this stage is premature as they have not yet filed their defence and in support of this he cited Chancery Diviscon in Quilter V. Heat Ly (1882 Q 37) that production of the books for inspection till statement of defence is filed, cannot be ordered. He also cited L .and 1 Rapaport V Kalianji Hirachand (AIR 1923 Bombay 73 ) which followed Quilter (supra) .
22. Shri Subrahmanian categorically stated that no documents will be relied upon in the proceedings before the Respondents without giving the Appellants a copy of the same and without giving them opportunity to explain the contents thereof. According to the learned counsel, the Appellants are facing charges of market manipulation and the notice is in that context and that intentionally they are delaying the proceedings before the authorities by filing appeals like the present one. He submitted that the Appellants have presented material before the Tribunal in an attempt to show that they have not indulged in market manipulation, but they are not prepared to present the material before the Respondents in reply to the show cause notice, though the material is available with them.
23. I have very carefully considered the rival contentions and my views thereon are as follows:
24. It is an admitted fact that the Appellants were trading in ARBL shares in large quantities through several brokers on BSE and NSE. The Appellants have claimed that they have suffered considerably as a result of short sales effected in the shares of ARBL by certain brokers, flouting the Respondents' risk management measures which included additional margins, prohibition on short sales etc They had written to BSE and NSE and also to the Respondents in this regard. According to them several arbitration claims have been preferred against them. In this scenario they wanted the Respondents to invoke section 11B and also furnish certain details/materials to them to protect their interest. They were repeatedly writing to the Respondents for the purpose. As there was no response from the Respondents to their satisfaction, they filed W.P. No. 845/2001 in the Hon'ble Bombay High Court. The Hon'ble Court on 9.4.2001 taking note of the submission made by the counsel for BSE and NSE about the status of investigation undertaken by them with reference to the market manipulation, disposed of the W.P. stating that "the matter is still at the stage of investigation and the question of supplying any information to the Petitioner or any other complainant does not arise at this stage. The Petitioner, if so advised, apply to SEBI after the investigation is complete for the necessary documents and other information and if such an application is made, SEBI will consider the same in accordance with law and pass appropriate order." It is clear from the Hon'ble Court's order that Respondents were to decide the matter on receipt of application and it is not that there was any direction to furnish all the information/documents which the Appellants demand.
25. The object of making representation to SEBI for various details is clear from the Appellants' letter dated 11.4.2001 following the Hon'ble High Court's order referred to above. In this context it is to be noted that at that point of time, there was no show cause notice requiring them to answer any charges. Still they wanted certain details/particulars and action from the Respondents. No such obligation is cast on the Respondents to furnish whatever information a person asks for. The Respondent's obligation to furnish information/detail is limited and relatable to the nature of the decision it takes and its impact on the person concerned. They cannot be forced to part with information just for asking. But they cannot also deny information which a person is entitled to receive. The Appellants in their letter dated 11.4.2001 had requested the Respondents:
(i)for exercising powers under section 11B of the Act
(ii)for providing the details of sales without requisite margins, short sales and/or fictitious dealing effected by certain members/brokers of BSE and/or NSE and or their constituents in respect of the dealing with the shares of ARBL during the period from 6th March, 2001 onwards (iii) directing annulment of such illegal trades/ bargains in view of Bye-laws of BSE and NSE and section 11B of the Act since the said short sales and/or fictitious dealings are in contravention of the directives given by SEBI on 5.3.2001 / 7.3.2001.
The Appellants followed up the said letter with several reminders. On 11.7.2001, the Respondents issued a pre prosecution notice to the Appellants - asking to show cause as to why prosecution should not be launched against them under the Act for violating the provisions of 1995 Regulations. It is noticed that the Respondents, subsequently filed criminal complaints in the Magistrate Court, and the Court has issued process. Therefore, it is for the Appellants to put forth their case before the trial court with reference to the prosecution launched in continuation of the said show cause notice.
It is noticed that on 27.7.2001 the Respondents issued a detailed notice to the Appellants charging them of creating false market and artificially raising the price of ARBL scrips and seeking explanation as to why action as provided under regulation 11 read with regulation 12 (a) should not be taken against them. Appellants responded to the same, to start with calling for several details from the Respondent. In this context it is noticed that in the letter dated 20.8.2001 the Appellants had summarised the details sought by them. The details sought for have been already extracted in the earlier part of this order. However, since the particulars were not furnished by the Respondents, the Appellants filed W.P. No.2737/2001 in the Hon'ble Bombay High Court inter alia praying that the Respondents be directed "to furnish the petitioner with the complete details of all the trades and or/transactions entered into the shares of Amara Raja Batteries Ltd., by all the member brokers of Respondent No.2 (BSE) on and after March 5, 2001 till March 23, 2001 (for settlement Nos. 50, 51 and 52) and the member brokers of Respondent NO.3 (NSE) or and after March 7, 2001 till March 20, 2001 (for settlement Nos. 10 and 11) and the details of dematerialised account of all their constituents as on the dates on which they entered into sale transactions for the aforesaid settlements of the said company i.e.Amara Raja Batteries Ltd., either at Respondent No.2 or Respondent No.3 or any other such details/material which will be relevant in the aforesaid investigation to prove the Petitioner's case"
26. The Hon'ble High Court vide its order dated 19.11.2001 disposed of the Writ Petition observing that "Mr. Kumar Desai learned counsel appearing for the SEBI stated that the petitioner's application for inspection of documents is under consideration of SEBI and SEBI has filed hearing of the said application on 27.12.2001. Mr. Desai stated that the SEBI will hear and dispose of the said application within a period of one week after hearing is concluded." Again it is clear that the court has left the decision to the Respondents as to what materials are to be disclosed after hearing the Appellants.
27. The Respondents have acted in compliance with the order - They heard the Appellants and also considered the written submissions and passed the impugned order setting forth the reasons according to their perception.
28. The Appellants' grievance that the Respondents did not comply with the directions of the Hon'ble High Court is baseless, the fact is that the action of the Respondents in compliance with the Hon'ble Court's order was not wholly in tune with the requirements of the Appellants. It cannot be helped.
29. Respondent No.1 has stated in the order that he has given the findings with respect to the "relevancy" of the documents sought by the Appellant and in that context the learned counsel for the Appellants had submitted that material/information sought by the Appellants are very relevant for their defence. The case law cited [M. L. Sethi (supra)] by the learned counsel in this regard is of no support to the Appellants. In that case the Hon'ble Court was deciding a special leave appeal from the order of the Hon'ble Allahabad High Court allowing an application for revision of order passed by the Civil Judge, Saharanpur directing discovery of documents by the respondent and dismissing an application by him for permission to sue in forma pauperis. In the said case the Hon'ble Court had held that "the documents sought to be discovered need not be admissible in evidence in the enquiry or proceedings. It is sufficient if the documents would be relevant for the purpose of throwing light in the matter in controversy." The expression "relevant"/'relevancy' has not been defined to give any precise meaning. The term relevancy describes the logical relationship between a proffered item of evidence and a proposition that is material or provable in a given case. ' Relevancy', as that term is used by writers on the law of evidence, omitting metaphysical distinctions, is that which "conduces to prove a pertinent theory in a case" or "which influences or control the case". The degree of connection between a fact that is given in evidence and the issue to be proved is relevant (Blacks Law Dictionary). In this context it is to be noted that the Respondents have started an enquiry against the Appellants for certain alleged violations of the 1995 Regulations. Show cause notice stating the charge and the material relied in support of the charge has been issued. The charges are specifically directed to the Appellants. It is not the Appellants' grievance that the show cause notice is deficient in as much as the same does not disclose the material facts relating to the charges. They want more details. It is well settled that the enquiry cannot go beyond the scope of the show cause notice. The Appellants' request for material/documents has to be seen in the context of the charges which they are required to answer in the show cause notice. The Respondents' argument, citing Quilter (supra) that "production of documents ought not to be ordered till a statement of defence had been filed" is not relevant, to the present case as the present case is in relation to an enquiry, in which the person concerned is asked to explain his conduct with reference to the show cause notice issued to him. In such an enquiry, the noticee cannot be denied of material relevant to answer the charges and cannot be said that let him file the defence and then the material will be furnished. Noticee cannot effectively defend, in case he is denied access to the material based on which the charges are levelled. Present case is not comparable to the facts in the Quilter. However, it is found that in the Appellants' case, the request is for such materials, which the Respondents have categorically stated will not be used against them without furnishing the same to them. The Respondents have to give the material/details based on which the charges are levelled. But they are not bound to give any material/detail which has no relevance to the charges being enquired into.
30. The Appellants in their memorandum of appeal have relied on the following averments made by the Respondents in their affidavit in W.P. 1759/2001 filed by one Orient Share & Stock Brokers P. Ltd., & others that :
" It is submitted that the Respondent conducted an investigation into the alleged price manipulation in the scrip of ARBL and violation of inter alia the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 1995 and the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 etc. This Respondent also investigated the role played by various persons/intermediaries in connection with the price manipulation in the scrip of ARBL and initiated further proceedings as stated in the preceding paras. It is respectfully submitted that the relevant part of the investigation report concerning the respective persons including the 2nd Appellant was served on them. The Appellants will be entitled to inspect all materials, documents, papers etc. relied upon by the Respondent and are relevant to the charges leveled against each of the Appellants. This Respondent states that the appellants are not entitled to full report of investigation made by the Respondent as the same is not identical and does not concern the Appellants but concerns other persons to whom Show Cause Notices have been issued. In the circumstances, this Respondent submits that the Appellants are not entitled to copies of the full investigation report." (Emphasis supplied)."
31. The parties have not stated as to whether the Hon'ble Court has passed any order in the said W. P. The Appellants have extracted the said para to show that the Appellants' dealing in the shares of ARBL is being investigated by the Respondents, that the Respondents are also required to look into the question of short sales and fictitious dealings as pointed out by the Appellants in their correspondence as also in the two Writ Petitions, that the Hon'ble Court vide order dated 9.4.2001 had given liberty to apply for such documents as necessary and the Appellants had sought the documents which have not been furnished. According to the Appellants though the Respondents on oath had submitted before the Hon'ble High Court that they are liable to part all documents and other materials that are relevant to the concerned persons and the Appellants are admittedly concerned with the entire investigation in the scrip of ARBL, still the Respondents have not furnished the details in this regard. It appears that the Appellants have not properly appreciated the purport of the cited averment. The position taken by the Respondents therein is akin to the position taken by them in the present case. They have not stated any where in the impugned order that they are not prepared to provide any material which is relevant to the charge. Their contention is that the material sought by the Appellants are not relevant to the charges in the notice and on that ground they have refused to furnish the material called for by the Appellants. The person 'concerned' has to be understood with reference to the show cause notice; the word "concerned" connotes a more intimate and direct relation to the matter. In the instant case the direct relation is to the charges and the consequences visiting the same.
32. On a perusal of the material on record and on consideration of the submissions made by the Appellants, to me, it appears that the Appellants are more concerned to pursue a course of action which they feel necessary to recoup the loss stated to have been suffered by them as a result of the alleged short sale of ARBL shares effected by some brokers flouting the SEBI directions and for that purpose they require material and find SEBI as the source. It is also evident that they need the particulars to use in arbitration claims filed against them. Fair enough. Their requirements for those purposes are understandable. But here the question relates to the supply of information with reference to the show cause notice holding specific charges. It is noticed that the Appellants' conduct is being enquired into by the Respondents with reference to their transactions in ARBL scrips during the relevant period. For the purpose the Respondents have issued show cause notice and the material relied on by them in support of the charge has been stated in the notice. The Respondents have made it clear, in the impugned order, "that no documents will be relied upon without giving the Appellants a copy of the same and without giving them an opportunity to explain the contents thereof". The said undertaking is very relevant. If for any reason it is found that the said undertaking has been flouted, consequences would follow. The Appellants have filed a lot of material in the appeal proceedings to support their contention that they are the victims and not the villains in the game. It is surprising to me, as to why the Appellants are reluctant to present their case before the Respondents and shying away from answering the charges. The Appellants are not in any way debarred from raising objections before the Respondents in the proceedings, in case they feel that the material relevant to the charges has been held back from them. Further in case they are aggrieved by the outcome of the proceedings initiated by the Respondents, they are entitled to appeal against such decision before the concerned forum. The Appellants' submission gives an impression that they want the scope of the enquiry to be expanded and take up the enquiry by themselves.
33. Taking into consideration the facts and circumstances of the case and the solemn assurance of the Respondents that no documents will be relied on without providing the same to the Appellants and without hearing them, I do not find any reason to issue any directions to the Respondents at present, as prayed for in the appeals.
34. For the reasons stated above, the appeals are dismissed.