BHORUKA FINANCIAL SERVICES LTD. Vs. SECURITIES & EXCHANGE

JUDGEMENT

(1.) THIS order will dispose of a bunch of 12 appeals filed under Section 15T of the Securities and Exchange Board of India Act, 1992 (for short œthe Act ) all of which are directed against the interim order dated December 6, 2005 passed by the whole time member of the Securities and Exchange Board of India (for short œthe Board ) restraining the appellant DLF Commercial Developers Limited (for short œDLF ) from dealing in the scrip of Bhoruka Financial Services Limited (hereinafter called œBFSL ). Promoters of BFSL who sold their shares to DLF have also been directed to deposit the sale proceeds in an escrow account with a nationalised bank and not to deal with the said amount without the prior approval of the Board. They too have come up in separate appeals. Some directions have been issued to the Magadh Stock Exchange and its officiating executive Director has been placed under suspension. We are not concerned in these appeals with the exchange or with its executive Director as they have not challenged the order before us. Since all the appeals raise common questions of law and fact, they are being disposed of together by a common order.

(2.) FACTS giving rise to these appeals in so far as they are relevant may first be stated.

(3.) IT came to the notice of the Board that trading on the platform of the Magadh Stock Exchange at Patna (for short the œexchange ) had been conducted in violation of the conditions of renewal of recognition granted to that exchange. On scrutiny of the details of the trading, it transpired that trading was concentrated mainly in the scrip of BFSL. DLF was the buyer of the shares of BFSL and the sellers were the promoters of BFSL, namely, Shri Satyanarayan Agrawal, Shri Vivek Agrawal, Smt. Umah Agrawal, Shri Siddhartha Agrawal, Satyanarayan Vivek Kumar HUF, Prabhu Securities Ltd., Bhoruka Engineering Ind. Ltd., Pragya Enterprises and its partners (hereinafter collectively referred to as the œsellers ). It also transpired that the shares had been sold approximately for a sum of Rs. 109.71 crores in just 10 trading days. It appears that the Board further scrutinised the trading history of the shares of BFSL which were listed on the Bangalore Stock Exchange and found that the said shares were illiquid and were last traded in the year 1988. It is common case of the parties that DLF acquired 98.73% of the shares of BFSL from the sellers by executing the transactions on the exchange where the shares had not been listed but were allowed to be traded in permitted category using the services of a broker of that exchange. It is relevant to mention here that when DLF agreed to purchase almost the entire share capital of BFSL, the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (for short œtakeover code ) got triggered and it filed an application before the Board seeking exemption from the takeover code under clause (1) of Regulation 3 of the said code and the said exemption was granted on 29/06/2005. It was thereafter that the shares were transferred through the exchange in the month of August 2005. It appears that the Board felt that the transactions were not above board since the shares of BFSL were listed on the Bangalore Stock Exchange where they were not traded and that the trade took place at the exchange at Patna which permitted the trading in contravention of the conditions of renewal of recognition granted to it. The Board thought that the matter was of imminent urgency and that there was need to safeguard the integrity of the securities market. By an ex -parte order dated 19/08/2005 DLF was prohibited from dealing in the scrip of BFSL and the sellers were directed to deposit the proceeds of the sale transactions in an escrow account with a nationalised bank. It was observed in the order that œany person aggrieved by this interim ex -parte order may approach SEBI within 30 days of this order showing cause for reconsideration of the directions . It is not in dispute that after the passing of this ex -parte order, DLF and the sellers filed their objections before the Board stating that for the reasons stated therein the restraint order was not called for. On receipt of the objections filed by the parties and after looking into the matter the Board by its order dated December 5, 2005 ordered investigations into the affairs of the alleged illegal trading conducted on the exchange between August 1 and August 12, 2005. After ordering the investigations, the Board by its order dated December 6, 2005 and after affording an opportunity of hearing to the appellants and others directed that the ex -parte interim order dated August 19, 2005 shall remain in force till further orders which the Board may pass on the conclusion of the investigations which were ordered on December 5, 2005. It is against this order that the present appeals have been filed.