# SECURITIES AND EXCHANGE BOARD OF INDIA v. PANASIAADVISORS LTD. &ANR

- **Citation:** [2015] 11 S.C.R. 90
- **Court:** Supreme Court of India
- **Decided:** 2015
- **Case number:** Civil Appeal No.10560 of 2013
- **Bench:** Fakkir Mohamed Ibrahim Kalifulla, Shiva Kirti Singh
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/securities-and-exchange-board-of-india-v-panasiaadvisors-ltd-anr-30326
- **Pages:** 89

## Headnote

c
Securities and Exchange Board of India Act, 1992:
ss.2(2), 11(1), 11(2), 11(4), 118, 12A-PowerofSEBlto
probe GDRs sold by Indian Companies backed by local
shares to foreign investors and listed on overseas exchange
D -
Respondents lead managers dealt with the Global
Depository Receipts (GDRs) issued by six companies -
Allegation that GDRs fictitiously created at global level by
respondent to give false. appearance to the financial
statement of the companies in order to mislead Indian
E investors - SEBI debarring the respondents for a period of
10 years prohibiting respondents from accessing the capital
market- Challenge against- Held: In the case on hand, the
allegations levelled against the issuing company in
connivance with the respondents are that a make believe
F affair was created, as though there was genuine creation of
GDRs and its investments by the foreign investors on the
very date when the GDRs were issued and thereby the global
performance of the issuing company in the local market of
the issuing company had a boost in the commercial sector,
G which lured the local investors to develop their keen interest
to make the investments on a higher share value by virtue of
the investment made by the foreign investors - The said fact
would certainly call for a probe at the hands of SEBI on whom
a duty is cast u/s. 11 (1) to protect the interest of investors in
H securities and the security market - Therefore, exercise of
90
SEBI v. PANASIAADVISORS LTD.
91
jurisdiction by SEBI against the respondents was well founded A
- Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident Outside India) Regulations,
2000 - Regns 2(1)(c), 5 - Issue of Foreign Currency
Convertible Bonds and Ordinary Shares (Through
Depository Receipt Mechanism) Scheme 1993 - Securities B
Contracts (Regulation) Act, 1956 - ss.2(h), 2(j) .
s.118 - Exercise of jurisdiction under. - Scope of -
Discussed.
Global Depository Receipts (GDRs) - What is GDRs
and how it is issued- Manner in which GDR is dealt with and
how the rights in favour of the holderofGDR is created after
its transfer in his favour - Discussed.
c
Role of Lead Manager at the time of creation and D
disposal of GDRs -
Discussed.
s. 2(h)(i) - Securities - Meaning of -
Discussed.
Allowing the appeal, the Court
E
HELD: 1.1 A reading of Regulation .s read along with
paragraphs (4) & (6) of Schedule I of Foreign Exchange
Management (Transfer or Issue of Security by a Person
Resident Outside. India) Regulations, 2000 gives a F
statutory recognition to the "Issue of Foreign Currency
Convertible Bonds and Ordinary Shares (Through
Depository Receipt Mechanism) Scheme 1993" which
came into force w.e.f 01.04.1992. Paragraph 4 (1 ), (2) &
(3) and (6) of Schedule I of the 2000 Regulations in effect G
authorises the issuance of Global Depository Receipts
(GDRs}and the Statutory requirements to be fulfilled for
the issuance of such GDRs ·to have a valid sanction
under law of the Indian origin. Under paragraph 3(5)
when an issuing company issues ordinary shares or H
92
SUPREME COURT REPORTS
(2015] 11 S.C.R.
A bonds under the 1993 Scheme, that company should
deliver the ordinary shares or bonds to a Domestic
Custodian Bank, who will in terms of the agreement
instruct the Overseas Depository Bank to issue GDR or
a certificate to non-resident investors against the shares
B or bonds held by the Domestic Custodian Bank .. [Paras
45, 47, 48] [127-C-E; 129-C-D]
1.2. A GDRs can be issued for one or more
underlying shares held .with the Domestic Custodian
C Bank. The GDRs may be denominated in any freely
convertible foreign currency. The ordinary shares under
the GDRs will be denominated only in Indian currency.
The issues viz., public or private placement, number of
GDRs to be issued, the issue price, rate of interest
D payable on foreign currency convertible bonds, the
conversion price, coupon and the pricing of the
conversion options would be decided by the issuing
company with the Lead Manag

## Text

_Characters 0–39,988 of 167,905. This is a partial read: ask again with offset=39988 for what follows._

(2015] 11S.C.R.90
A
SECURITIES AND EXCHANGE BOARD OF INDIA
B
v.
PANASIAADVISORS LTD. &ANR.
(Civil Appeal No.10560 of 2013)
JULY06,2015
[FAKKIR MOHAMED IBRAHIM KALIFULLA
AND SHIVA KIRTI SINGH, JJ.]
c
Securities and Exchange Board of India Act, 1992:
ss.2(2), 11(1), 11(2), 11(4), 118, 12A-PowerofSEBlto
probe GDRs sold by Indian Companies backed by local
shares to foreign investors and listed on overseas exchange
D -
Respondents lead managers dealt with the Global
Depository Receipts (GDRs) issued by six companies -
Allegation that GDRs fictitiously created at global level by
respondent to give false. appearance to the financial
statement of the companies in order to mislead Indian
E investors - SEBI debarring the respondents for a period of
10 years prohibiting respondents from accessing the capital
market- Challenge against- Held: In the case on hand, the
allegations levelled against the issuing company in
connivance with the respondents are that a make believe
F affair was created, as though there was genuine creation of
GDRs and its investments by the foreign investors on the
very date when the GDRs were issued and thereby the global
performance of the issuing company in the local market of
the issuing company had a boost in the commercial sector,
G which lured the local investors to develop their keen interest
to make the investments on a higher share value by virtue of
the investment made by the foreign investors - The said fact
would certainly call for a probe at the hands of SEBI on whom
a duty is cast u/s. 11 (1) to protect the interest of investors in
H securities and the security market - Therefore, exercise of
90
SEBI v. PANASIAADVISORS LTD.
91
jurisdiction by SEBI against the respondents was well founded A
- Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident Outside India) Regulations,
2000 - Regns 2(1)(c), 5 - Issue of Foreign Currency
Convertible Bonds and Ordinary Shares (Through
Depository Receipt Mechanism) Scheme 1993 - Securities B
Contracts (Regulation) Act, 1956 - ss.2(h), 2(j) .
s.118 - Exercise of jurisdiction under. - Scope of -
Discussed.
Global Depository Receipts (GDRs) - What is GDRs
and how it is issued- Manner in which GDR is dealt with and
how the rights in favour of the holderofGDR is created after
its transfer in his favour - Discussed.
c
Role of Lead Manager at the time of creation and D
disposal of GDRs -
Discussed.
s. 2(h)(i) - Securities - Meaning of -
Discussed.
Allowing the appeal, the Court
E
HELD: 1.1 A reading of Regulation .s read along with
paragraphs (4) & (6) of Schedule I of Foreign Exchange
Management (Transfer or Issue of Security by a Person
Resident Outside. India) Regulations, 2000 gives a F
statutory recognition to the "Issue of Foreign Currency
Convertible Bonds and Ordinary Shares (Through
Depository Receipt Mechanism) Scheme 1993" which
came into force w.e.f 01.04.1992. Paragraph 4 (1 ), (2) &
(3) and (6) of Schedule I of the 2000 Regulations in effect G
authorises the issuance of Global Depository Receipts
(GDRs}and the Statutory requirements to be fulfilled for
the issuance of such GDRs ·to have a valid sanction
under law of the Indian origin. Under paragraph 3(5)
when an issuing company issues ordinary shares or H
92
SUPREME COURT REPORTS
(2015] 11 S.C.R.
A bonds under the 1993 Scheme, that company should
deliver the ordinary shares or bonds to a Domestic
Custodian Bank, who will in terms of the agreement
instruct the Overseas Depository Bank to issue GDR or
a certificate to non-resident investors against the shares
B or bonds held by the Domestic Custodian Bank .. [Paras
45, 47, 48] [127-C-E; 129-C-D]
1.2. A GDRs can be issued for one or more
underlying shares held .with the Domestic Custodian
C Bank. The GDRs may be denominated in any freely
convertible foreign currency. The ordinary shares under
the GDRs will be denominated only in Indian currency.
The issues viz., public or private placement, number of
GDRs to be issued, the issue price, rate of interest
D payable on foreign currency convertible bonds, the
conversion price, coupon and the pricing of the
conversion options would be decided by the issuing
company with the Lead Manager to the issue. Once such
GDRs are issued by the Overseas Depositary Bank,
E which has the approval of the appropriate authorities of
the Indian origin as well as appropriate regulatory
authority of registered agencies at the global level, the
GDR becomes an approved registered authenticated
F instrument over which any non-resident can make an
investment for possessing it as a valid holder of GDR.
Paragraph 3(1) states thatan issuing company desirous
of raising foreign funds by way of GDRs based on
ordinary shares for equity issues can create such
G receipts. In order to fulfill its desire, the prior permission
of the Department of Economic Affairs has to be
obtained. In that process, the Lead Manager P.lays a
pivotal role as in consultation with the Lead Manager,
the completion of finalization of issue structure by the
H issuing company is made subject however to the final
SEBI v. PANASIAADVISORS LTD.
93
approval for proceeding ahead with the issue from the A
Department of Economic Affairs. After such creation,
GDR which.is governed by the agreement as between
the Domestic Custodian Bank and the issuing company,
instructions are given to the Overseas Depository Bank
to issue the GDRs to the extent of underlying ordinary B
shares held by the Domestic Custodian Bank. GDR is
issued in the negotiable form and listed on any
international stock exchange for trading outside India.
On such listing, they are always issued for exchange of
freely convertible foreign currency. Again the Lead C
Manager plays a key role in relation to the issues viz.,
public or private placement, number of GDR to be issued,
the issue price etc., in consultation with the issuing
company. This is how GDRs are dealt with after creation. 0
Once the GDRs are listed on. any of the overseas Stock
Exchanges, the same can be purchased, possessed and
freely transferred by a· person who is a non-resident
within the meaning of Section 2(q) of the Foreign
Exchange Regulation Act, 1973. A holder of GDRs viz., a E
non-resident can transfer those receipts or may ask the
Overseas Depository Bank to redeem those receipts. In
the case of redemption, Overseas Depository Bank
makes a request to the Domestic Custodian Bank to get
the corresponding underlying shares released in favour F
of the non-resident investor for being sold directly on
behalf of the non-resident or being transferred in the
books of account of the issuing bank in the name of the
non-resident. That is the manner in which GDR is dealt
with after its creation ~nd that is how the rights in favour G
of the holder of GDR is created after its transfer in his
favour. The role of Lead Manager is thus prescribed
under the scheme at the time of its creation as well as its
disposal. [Paras 48, 53, 54, 55] [129-F-H; 130-A; 131-DH; 132-A-G]
H
94
SUPREME COURT REPORTS
[2015] 11 S.C.R.
A
2.1. Master Circular on Foreign Investment in India
issued by the RBI, which gives detailed description about
creation of GDRs which are negotiable securities issued
outside India by a depository bank on behalf of an Indian
company which represent the local rupee denominated
B equity shares of the company held as deposit by a
Custodian Bank in India. The Master circular reiterates
that GDRs are issued on the basis of the ratio worked
out by the Indian company in consultation with the Lead
Manager to the issuing company. It also highlights as to
C how such of those Indian listed companies which have
been restrained from accessing the securities market by
SEBI will be ineligible to issue GDRs. The Master Circular
also explains as to how under the two way fungibility
0
scheme which was put in place by the Government of
India for GDRs under which a stock broker in India
registered with tile SEBI can purchase shares of an
Indian company from the market for conversion into
GDRs based on instructions issued from overseas
E investors and also re-issuance of GDRs to be permitted
to the extent of GDRs ·which are redeemed into
underlying shares and sold in the Indian market. [Paras
58, 59] [133-G-H; 134-A-D]
F
2.2. On a consideration of the 2000 Regulations, the
1993 Scheme and the Master Circular issued by RBI
periodically one can discern that for creation of GDRs
which can be traded only at the global level, the issuing
company should have developed a reputation at a level
G where the marketability of its investment creation
potential will have a demand at the hands of the foreign
investors. Simultaneously, having regard to the
development of the issuing company in the market and
the confidence built up with the investors both internally
H as well as at global level, the issuing company's desire
SEBI v. PANASIAADVISORS LTD.
95
to raise foreign funds by creating GDRs should have the A
appreciation of investors for them to develop a keen
interest to invest in such GDRs. For creating of GDRs
apart from the desire of the issuing company to raise
foreign funds, the marketability of such shares in the
form of GDRs should have an applicable potential at the B
global level. To put it differently, by artificial creation of
global level investment operation, either the issuing
company on its own or with the aid of its Lead Manager
cannot attempt to make it appear as though there is
. scope for trading GDRs at the global level while in reality C
there is none. The above fact has to be kept in mind
when dealing with an issue relating to creation ofGDRs,
in as much as, when the GDRs gets fully subscribed at
the global level providing scope for huge foreign 0
investment, the same will have a serious impact at the
internal investment market in the form of high
appreciation of share value whereby the issuing
company and the investor will be greatly benefited
mutually. Such a real growth structurally and financially E
is the underlying principle in the creation and trading of
GDRs at the global level. [Para 60] [134-E-H; 135-A-C]
3.1. Going by the definition under Section 2(h)(i),
'security' would include other marketable securities of a F
like nature· of any inc.orporated company. Reading
Section 2(h)(i) and 2(h)(iii) together and applying the
same to GDRs, having regard to the fact that the issuance
of GDRs are always based on the underlying Indian
shares deposited with the Domestic Custodian.Bank and G
thereby the GDRs possess in it right, as well as, interest
~
in the shares, scripts etc., it will have to be held that all
GDRs would fall within the. definition of 'securities' as
defined under Section 2(h) of the 1956 Act. Further, under
Section 2(2) of the SEBI Act, 1992, words and H
,,
96
SUPREME COURT REPORTS
[2015] 11 S.C.R.
A expressions used and not defined but defined under the
SCR Act, 1956, the said meaning would respectively
assign wherever used in the SEBI Act, 1992. Therefore,
for the expression 'stock exchange' one will have to fall
back upon Section 2(j) of the SCR Act, 1956. The
B definition makes it clear that a 'stock exchange' as
formed under Section (2)0)(a) & (b) are for the purpose
of assisting, regulating or controlling the business of
buying, selling or dealing in securities. It is true that
GDRs have no time limit and can be possessed as GDRs
C for any number of years. However, when the holder of
the GOR apart from trading with the same as GDR in the
global market at any point of time wish to redeem the
same or go in for fungibility of the redeemed shares back
0 into GDRs, necessarily the holder of a GDR will have to
fall back upon the stock exchanges as per the definition
under Section 2(j) of the SCR Act, who alone can assist,
regulate or control the business of buying, selling or
dealing with securities. [Paras 63-65] [136-C-F; 137-A-C]
E
3.2. The creation of the GDR by the issuing company
and after its creation in the fixation of price, value,
marketing in the global market, the support of Lead
Manager is involved and while dealing with such GDRs,
the same is regulated in so far as it related to underlying
F shares deposited with the Domestic Custodian Bank by
the laws regulating the same and prevalent in India and
so far as the corresponding GDRs created based on
such underlying shares are concerned, the same are
G governed by the laws prevailing in the respective market
where such GDRs are being traded. Post cancellation
of GDRs, the underlying shares deposited with the
Domestic Custodian Bank is made available for trading
in India depending upon the wish of the holder of GDR
H in the local market or for holding it as such i.e as mere
SEBI v. PANASIAADVISORS LTD.
97
shares of the issuing company or by virtue of the A
fungibility scheme can once again be converted as GDRs
for being traded in the global market. [Para 67] [137-H;
138-A-D]
4.1. Under Section 11(1) of the SEBIAct, 1992, a duty 8
has been cast on the SEBI to protect the interest of
investors in securities and also to promote the
development of the securities market as well as for
regulating the same by taking such measures as it thinks
fit. The duty of SEBI would include regulating the c
business in the stock exchanges arid any other
securities market which would include the working of
stock brokers, share transfer agents and similarly placed
other functionaries associated with securities market in
any manner, registering and regulating the working of D
the depositories, participants of securities including
foreign institutional investors in particular to ensure that
fraudulent and unfair trade practices relating to
securities markets are prohibited and also prohibiting
insider trading in securities. Under Section 11 (4)(a) and E
(b) SEBI can by an order 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 F
and prohibiting any person associated with securities
market to buy, sell or deal in securities. A reading of
Section 11(4)(b), shows the power invested with SEBI
for passing such orders of restraint, the same can even
be exercised against "any person". Under Section 118, G
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 H
conducting in a manner detrimental to the interest of
98
SUPREME COURT REPORTS
(2015] 'I 1 S.C.R.
A 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 asseciated with securities
market or to any company in respect of matters specified
B in Section 11 B in the interest of investors in the securities
and the securities market. In exercise of its powers, SEBI
can pass orders of restrain.t to carry out the said purpose
by restraining any person. Section 12A(a) (b) and (c)
read along with Regulation 2(1)(b) and (c), as well as
C Section 2(h)(iii) of the SCR Act, 1956 cover any act which
will have relevance in protecting the interest of the
investors in securities and security market with any
person however remotely the same are connected with
0 such securities, in the event of such an act working
against the interest of investors in securities and
securities market by way of fraud which has been
elaborately defined under Regulation 2(i)(c) of 2003
Regulations. [Paras 71-73) [147-B-H; 148-A-E; 149-D-F]
E
4.2. The creation of GDR and its trading in the global
market are governed by the respective laws of the
country in which they are dealt with. But one special
feature to be borne in mind is that in the case on hand,
the allegations levelled against the issuing company ii:i
F connivance with the respondents are that a make believe
affair was created, as though there was genuine creation
ofGDRs and its investments by the foreign investors on
the very date when the GDRs were issued and thereby
the global performance of the issuing company in the
G local market of the issuing company had a boost in the
commercial sector, which lured the local investors to
develop their keen interest to make the investments on
a higher share value by virtue of the investment made
H by the foreign investors and in that process it is alleged
SEB: 11. PANASIAADVISORS LTD.
99
that the issuing company itself provided every scope for A
the foreign investments to be financed and in reality the
ultimate investment was made by Indian investors viz.,
the ordinary share holders. The said fact would certainly
call for a probe at the hands of SEBI on whom a duty is
cast under Section 11(1) to protect the interest of B
investors in securities and the security market. Under
Section 11(2)(b) while regulating working of stock
brokers, etc., it is also provided that SEBI can regulate
"such other intermediaries who may be associated with
security markets in any manner". The said set of C
expressions would cover anyone who are directly or
indirectly or in a subterfuge manner dealt with the
securities to deceive the real investors in Indian stock
market. If the allegation thatthe respondents facilitat~d 0
issuing company (viz,) Asahi aided the foreign investor
company to invest in its GDRs by supporting the loan it
borrowed from Euram and thereby the said allegation
can be brought within the expression 'insider trading'·
that would also empower SEBI to intervene. It is for the E
respondents as well as the Indian issuing company to
demonstrate that any of the allegations made by the
appellant in relation to the so called fraud or fictitious
creation of GDRs at the global level to mislead the local
investors was totally baseless and that therefore no F
action was called for. It is common knowledge that in
the commercial sector, companies which are in the field
of manufacturing or any other business activity are able
to gain the confidence of the investors by virtue of their
appreciable
performance
in
the . respective G
manufacturing or other business activities and while
controlling and developing the growth in their respective
field of business, aspire to make further excellence by
drawing the attention of foreign investors to make
investments and thereby broad base their business H
100
SUPREME COURT REPORTS
[2015] '11 S.C.R.
A venture also endeavour to sustain their development in
the concerned business in which they are involved. Any
such initiative taken by any entrepreneur would develop
an appreciable trend in the share market which would
draw the attention of the local investors to stake their
B claim in such well established, well grown business
ventures with a view to earn better profits on whatever
investments they wish to make. Therefore, if there is
going to be a false pretext or misleading information
circulated with a view to lure both the foreign investors
C as well as Indian investors and in that process the very
purpose of creation and trading in GDRs are found to
be not true or bona fide, it cannot be said that simply
because creation of such GDRs and its trading is in
0
global market, SEBI should keep its mouth shut on the
ground that it cannot extend its long statutory arm
beyond Indian territory to control any such misdeeds
deliberately committed with a view to defraud the Indian
investors and thereby their interest in the investment of
E securities and its protection is at great stake. Having
regard to the nature of allegations in the interests of
investors in securities as well as the statutory obligation/
duty cast upon SEBI to protect their interests, SEBI has
got every jurisdiction to proceed against the
F respondents as well as the issuing company. The 1993
Scheme was acknowledged under the 2000 Regulations,
but on that score it cannot be held that the said Scheme
or Regulations will have no application when it comes
to the question of any action being initiated under the
G provisions of SEBI Act, 1992 read along with SCR Act,
1956. There is no statutory .prohibition either under FEMA
or RBI Act preventing SEBI from taking action in exercise
of its powers under Section 11, 118 and 12A of the SEBI
Act, 1992. Therefore it is too late in the day for the
H respondents to contend that action can only be taken
SEBI " PANASIAADVISORS LTD.
101
for any violation under the FEMA and there is no scope A
for invoking the provision of SEBI Act, 1992. The said
submission therefore is also liable to be rejected. [Para
80, 81, 82] [157-F-H; 158-A-F; 159-D-H; 160-A-G; 161-8]
5.2 Any use, intended or otherwise, of depository B
receipts or market of depository receipt in a manner,
which has potential to cause or has caused abuse of
securities market in India, is "market abuse" and shall
be dealt with accordingly. According to Clause 10(2) for
the purpose of this paragraph, "market abuse" means c
any activity prohibited under Chapter V-A of the SEBI
.. ~ct, 1992. Under paragraph 11 of the 2014 Scheme, the
1993 Scheme stood repealed except to the extent
relating to foreign currency convertible bonds and subpara (2) of Section 11 contains a non-dbstante clause o
that notwithstanding such repeal, anything done or any
action taken under the 1993 Scheme shall be deemed to
have been done or taken under the corresponding
provision of the present scheme. The 2014 Scheme
having thus explained what is "market abuse", it must E
be stated that now after the 2014 Scheme any act done
under the 1993 Scheme has also been validated. The
definition of "market abuse'; would squarely cover the
allegation presently made by the appellant as against
the respondents. Simply because "market abuse" has F
been now codified under the 2014 Scheme, it cannot be
held that there is no scope for proceeding against any
person for indulgence in such a "market abuse" prior to
the introduction of the 2014 Scheme. The underlying
stiares of GDR were created and dealt with as well as G
traded in the stock market. of Indian Territory. Any act
which c.aused any infringement in such trading of those
underlying shares by virtue of any malfeasance or
misfeasance or misdeeds committed by any person H
under the Act which worked against the interests of the
102
SUPREME COURT REPORTS
(2015) 11 S.C.R.
A investors in securities and the securities mal'ket, the
SEBI was entitled to proceed against such persons who
are involved in any of those allegations. Therefore, the
reference to those provisions contained in other
enactments does not cause any impediment for SEBI to
B proceed against the respondents in exercise of its
jurisdiction under the SE81Act, 1992. [Paras 85, 86) [1638-G; 164-D-F]
5.2. As per paragraph 4(2) and (3) of Schedule I of
c 2000 Regulations, the Indian company issuing shares
for the purpose of issuing GDRs should furnish to the
Reserve Bank the full details of such issue in the
prescribed form DR with.in 30 days from the date of
closing of the_issue. Similarly under paragraph 4(3)
D issuing company against GDR should furnish a quarterly
return in the prescribed form DR-Quarterly to RBI within
15 days of the close of the calendar quarter. In the event
of any wrong statement furnished in these forms, it
provides scope for proceeding against the issuing
E company as well as any person connected with such
violation and it would certainly empower the authority
viz., SEBI to initiate action under the SEBI Act, 1992 in
order to protect the interests of Indian investors in
securities and the security market. [Paras 87, 88) [164F G-H; 165-A, E-F]
6.1. As far as the stand of the second respondent
that he is a non-resident. Indian residing in Dubai till
September, 2011 and was the Managing Director of the
G first respondent and that the first respondent is a distinct
and separate legal entity from the second respondent
and therefore the first respondent cannot be made liable
or responsible for the action of the second respondent.
It is too late in the day for the respondents in attempting
H to get themselves excluded from the alleged violations
SEBI v. PANASIAADVISORS LTD.
103
as against the issuing companies along with the A
respon~ents, which resulted in the passing of the order
of debarment. For the very same reasons, the stand of
the second respondent that he is not an intermediary
and his role in relation to GDR was limited to advising
for the listing of GDRs etc., would not absolve the second B
respondent from facing the action initiated by the
appellant. [Paras 91, 92] [167-D-H]
6.2. Parliament has no power to legislate for any
territory other than the territory of India or other part of c
India with respect to aspects or causes which have no
impact or nexus with India. The SEBI Act itself provides
for proceeding against any person in order to protect
the interests of investors and the stock market in India
· with reference to any fraud played against such interest D
of the investors in India. Even if the law applies to
persons who are not corporally present within the
territory of India, even if they are citizens abroad when
such persons commit acts which affects the legitimate
interest of this country which would include such E
legitimate interest in the case on hand of the investors
in India at the stock market, it must be held that the
appellant would be fully empowered to proceed against
such persons as provided under the provisions of SEBI
Act, 1992. [Paras 96, 98] [171-E-F; 172-F-G]
GVK Industries Limited and another v. Income Tax
Officer and Another2011 (3) SCR 366: (2011) 4
SCC 36; Union of India and Others v.
Dharamendra Textile Processors and Others
2008 (14) scR 13: (2008) 13 sec 369 -
followed.
Republic of Italy through Ambassador and Others
v. Union of India and Others 2013 (4) SCR 595:
(2013) 4 sec 721 - relied on.
F
G
H
104
A
B
c
D
E
F
SUPREME COURT REPORTS
[2015] 11 S.C.R.
Vodafone International Holdings BV v. Union of
India and Another 2012 (1) SCR 573: (2012) 6
sec 613- held inapplicable.
Haridas Exports v. All India Float Glass
Manufacturers' Assn. and Others 2002 (1) Suppl.
SCR 229: (2002) 6 sec 600; Chairman, SEBI v.
Shriram Mutual Fund and Another2006 (2) Suppl.
SCR 833: (2006) 5 SCC 361 - referred to.
Case Law Reference
2011 (3) SCR 366
followed.
Paras 29, 94
2013 (4) SCR 595
relied on.
Paras 29, 97
2006 (2) Suppl. SCR 833
referred to.
Paras 29, 99
2008 (14) SCR 13
followed.
Paras 29, 100
2002 (1) Suppl.SCR 229
Referred to. Paras 42, 101
2012 (1) SCR 573
held
inapplicable. Paras 42, 103
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
10560 of2013.
From the Judgment and Order dated 30.09.2013 in
Appeal No. 126 of 2013 of the Securities Appellate Tribunal,
Mumbai ("SAT')
Chander Uday Singh, Pratap Venugopal, Surekha
Raman, Purushottam KumarJha, Gaurav Nair, Niharika (for
K. J. John & Co.) for the Appellant.
G
Shyam Divan, Shaiwal Srivastava, Abhinav Malhotra,
Ashok K. Srivastava for the Respondents.
The Judgment of the Court was delivered by
FAKKIR MOHAMED IBRAHIM KALIFULLA, J. 1. This
H appeal at the instance of the Securities and Exchange Board
SEBI v. PANASIAADVl.SORS LTD. [FAKKIR MOHAMED 105
IBRAHIM KALIFULLA, J.]
of India (hereinafter called "SEBI") is directed against the A
majority judgment and final order dated 30.09.2013, passed
by the Securities Appellate Tribunal, Mumbai, in Appeal
No.126 of 2013.
2. The short question that arises in this appeal relates to B
the jurisdiction of SEBI under the Securities and Exchange
Board of India Act, 1992, (in short "SEBIAct, 1992") to initiate
proceedings against the respondents as Lead Managers to
the Global Depository Receipts (in short "GDRs") issued
outside India based on investigations held by it and on its C
conclusion that in relation to transaction of sale/purchase of
underlying shares released on redemption of GDRs in the
securities market in India, the Lead Managers had committed
fraud on the investors in India and that such fraudulent intention
existed at every stage of the GDR process till sale/purchase D
of underlying shares in the securities market in India. The further
question that arises for consideration is that if the said question
is answered in the affirmative, whether the SEBI was justified
in passing its impugned order dated 20.06.2013, debarring
the respondents herein from rendering services in connection E
with instruments that are defined as securities under Section
2(h) of the Securities Contracts (Regulation).Act, 1956 (in short
"SCRAct, 1956") and such debarment fora period of 10 years
prohibiting the respondents from accessing the capital market
directly or indirectly under SEBI Act, 1992 and the regulations
framed there under was justified.
F •
3. When the order of SEBI dated 20.06.2013 was
challenged by the respondents before the Securities Appellate
Tribunal, Mumbai in Appeal No.126 of 2013, the Chairman of G
the Tribunal in his minority view upheld the order of the SEBI
while the members of the Tribunal by way of their majority view
set aside the order of SEBI debarring the respondents. It was
in the above stated background SEBI has come forward with H
this appeal before us.
106
SUPREME COURT REPORTS
[2015] 11 S.C.R.
A
4. Therefore, for us, the only question to be decided is
as to whether SEBI had jurisdiction in passing the impugned
order dated 20.06.2013 debarring the respondents for a
period of ten years in dealing with securities while considering
the role played by the respondents as Lead Managers relating
B to the GDRs issued by six companies who issued such GDRs.
In the counter affidavit filed on behalf of the first respondent, it
is stated that the said respondent's name has been changed
and is now known as Global Finance & Capital Limited, having
its office International Corporate House, Monster House, 42
C Mincing Lane, London and represented by its Executive Officer
Ms. Neha Dua. Therefore, whatever stated with reference to
first respondent and applicable to it in this order shall mutatis
mutandis apply to the said entity namely Global Finance &
0
Capital Limited in all respects.
5. In order to appreciate the issue raised, it will be
necessary to explain the manner in which the respondents dealt
with the GDRs issued by those six entities in the foreign market
and the nature of allegation which according to SEBI was found
E true and which led SEBI to conclude that such manner of dealing
of the GDRs of those companies by the respondents as Lead
Managers did have a serious impact in the securities market
of Indian origin and consequently it had jurisdiction to proceed
F
against the respondents.
6. In the present appeal, according to SEBI the
respondents as Lead Managers dealt with the GDR.s issued
by six entities viz., (1)Asahi Infrastructure & Projects Ltd (Asahi)
(2) IKFTechnologies Ltd. (IKF) (3)Avon Corporation Ltd (Avon)
G (4) K Sera Sera Ltd (K Sera) (5) CAT Technologies Ltd (Cat)
and (6) Maars Software International Ltd (Maars).
7. Mr. C.U. Singh, learned senior counsel who appeared
for SEBI submitted that since the nature and manner of handling
H of the GDRs by the respondents as Lead Managers were
SEBI v. PANASIAADVISORS LTD. [FAKKIR MOHAMED 107
IBRAHIM KALIFULLA, J.]
identical relating to all the six companies, for the purpose of A
noting the nature of such dealings we can restrict it to the first
company viz., Asahi and that the same can be applied mutatis
mutandis in respect of the six other companies. We are
therefore referring to the details of the GD Rs issued by Asahi
and the manner in which such issuance of GDRs were B
disposed of and ultimately converted into shares and sold out
in the Indian Market.
8. According to SEBI, Asahi issued equity shares of
Rs.29,91,00,000/- of Rupee one each at the value of 2 USO C
on 29.04.2009. Such shares issued resulted in allotment of
29,91,000 GDRs containing 29,91,00,000 equity shares. The
total value of the GDRs issued was 5.98 million USO. Such
GDRs issued were fully subscribed and closed on 29.04.2009
itself.
D
9. Prior to the GDRs issue, Asahi had 3,71,96,000 fully
paid equity shares and GD Rs issued was about eight times
of Asahi's outstanding share capital. The first respondent
herein was appointed as the Lead Manager for the GDR E
issued and the entirety-of the share capital of the first
respondent was held by the second respondent. While
referring to the GDR issued by Asahi and the appointment of
the respondents as its Lead Managers, it will be necessary to
refer to two other entities viz., Vintage and Eu ram. The second
F
respondent is the Managing Director of Vintage and Eu ram is
the foreign bank lender. It was mainly stressed at the instance
of SEBI that there was a loan taken from Eu ram by Vintage for
subscribing to the GDRs of Asahi and that the same was
managed by a loan and pledge agreement signed not only by G
Vintage and Eu ram but by Asahi as well. According to SEBI,
the second respondent herein structured the loan and pledge
agreement to which Asahi, Vintage and Euram were
signatories and the terms of the Joan agreement as well as the H
108
SUPREME COURT REPORTS
[2015] 11 S.C.R.
A
pledge agreement were intertwined and they were the keys to
the alleged fraudulent issuance and subscription of GDRs.
10. It was pointed out that the loan agreement was dated
21 /22.04.2009 between Euram and Vintage bearing
B agreement No.K210409-003 i.e. eight days before the
issuance of GDRs themselves. The second respondent signed
the loan agreement as Managing Director of Vintage under
the loan agreement, Euram sanctioned a loan of 59,82,000
USD to Vintage, the borrower to enable Vintage to take Asahi's
C GDRs and thereafter to transfer to Euram Ale No.540030.
However, as a matter of fact, it was found that Ale No.540030
in Eu ram was Asahi's account for depositing the proceeds of
GD Rs. Clause 6.1 of the loan agreement stipulated for creation
of a pledge of (A) the securities held in the borrower's account
D No.540030 (in reality it was Asahi's account) at Euram (B)
Pledge of that very account No.540030 (pledging of Asahi's
account itself) for supporting the borrower under the loan
agreement. The pledge agreement was dated 21.04.2009,
between Asahi and Euram signed by Mr.Laxminarayan Rathi
E
in his capacity as Managing Director of Asahi on 28.04.2009.
It is relevant to note that family members of Mr.Rathi are the
promoters of the Asahi. It was pointed out on behalf of SEBI
that Mr.Rathi did not inform Bombay Stock Exchange (BSE)
F
or the company or the shareholders about the signing of the
pledge agreement in favour of Eu ram. Therefore, Asahi was
the Pledgor with Eu ram Bank under the pledge agreement.
The preamble of the pledge agreement after referring to the
loan agreement between Eu ram and Vintage stated that the
G pledgor agreed to th~ terms of loan agreement and a copy of
the loan agreement was also delivered to pledgor and in effect
having regard to such nature of agreement as between Asahi
and Eu ram as pledgor and ledge and the borrower made by
Vintage from Euram for whom loan was advanced, Eu ram got
H it secured by the pledge of GDR themselves issued by Asahi.
SEBI v. PANASIAADVISORS LTD. [FAKKIR MOHAMED 109
IBRAHIM KALIFULLA, J.]
11. Further Clause 2.1 of pledge agreement provided A
for pledging of the pledgor's assets as collateral security for
due repayment of the loan under the loan agreement for the
value of 59,82,000 USO. Clauses 6.1, 6.2 and 6.3 of the
pledge agreement gave full rights to the bank Euram to ealiza
its loan agreement by ealization of pledged securities. By virtue
B
of the coalesce manner of the loan agreement and pledge
agreement, the resultant position was found to be a common
ownership of bank account by the borrower, subscriber and
the issuing company added to a guarantee by the issuing
company for the loan taken by the subscriber to its GDRs. C
According to SEBI such a nature of transactions as between
Asahi, Vintage and Euram disclosed central and determining
features of a scheme to fraudulently raise fake capital by the
issuing company.
D
12. At this juncture, we want to make it very clear that we
are not expressing any opinion as to the correctness or
otherwise of the stand of SEBI at this moment. We are only
concerned with the question as to the jurisdiction of SEBI to
exercise its powers under the provisions of the SEBI Act, 1992 E
and SCR Act, 1956 read along with the regulations framed
under the provisions of SEBI Act, 1992 to proceed against the
respondent(s) as the Lead Managerfor the so called fraudulent
transaction indulged in by the respondents.
13. As far as the nature of fraud alleged is concerned,
according to SEBI the investors of GDR of Asahi were found
F
to be Messers Greenwich Management Inc and Tradetec
Corporation. Greenwich was stated to have paid 29,82,000
USO for the purchase of 14,91,000 GDRs and Tradetec G
Corporation paid 30,00,000 USO for 15,00,000 GDRs. It is
further pointed out that while Greenwich claimed to have its
office at Hong Kong and Tradetec at Singapore, inspite of its
best efforts, SEBI could not contact both the addresses H
furnished by the above investors as it turned out ultimately that
110
SUPREME COURT REPORTS
[2015] 11 S.C.R.
A
the addresses were non-existent or the said addresses do
not belong to them. It also came to the knowledge of SEBI
that the said investors had investments in several other GDRs
of Indian Companies.
B
14.Apartfrom the above, it was pointed out on behalf of
SEBI that on 01.06.2009, Asahi informed BSE about allotment
and creation of 29,91,00,000 equity shares and 29,91,000
GDRs to foreign entities viz., Greenwich and Tradetec for
conversion. Based on such information, BSE made it public
C to retail investors. It was however found that in reality the GD Rs
were subscribed by Vintage in connivance with Asahi and the
proceeds simultaneously pledged with Euram. On 15/
16.07.2009, BSE stated to have uthorized the trading of
29,91,000 GDRs in the Indian Market. After the issuance of
D GDRs, Vintage became the sole holder of the said GDRs and
thereby it became majority share holder of Asahi i.e. 88.94 %
shareholding. Vintage transferred the GDRs to two entities
called IFCF (India Focus Cardinal Fund) and Kii Limited
between 17.08.2009 and 15.06.2011. Another entity called
E Credo an associate company of Kil limited had an agreement
with Vintage for dealing with the GD Rs of Asahi. As per the
said agreement Vintage gave a loan of 20,00,000 USO to
Credo to further lend it to Kii Limited to enable Kil limited to
F
purchase the securities of several Indian companies including
Asahi. The agreement enabled Kii iimited to convert GD Rs
into underlying shares and in fact shares were sold in the Indian
market. Such sale effected and the proceeds collected were
used to purchase further securities and to repeat the said
G process until Kil limited decided to terminate the agreement.
Credo was paid commission by Vintage and the agreement
ensured Vintage to take full liability of the dealings of Kii iimited
in the GDRs of Indian Companies and any loss by Kii iimited
to be borne by Vintage. The said agreement was also signed
H by the second respondent on behalf of Vintage.
SEBI v."PANASIAADVISORS LTD. [FAKKIR MOHAMED
111
IBRAHIM KALIFULLA, J.]
15. Cancellation of Asahi GDRs said to have started from A
19.08.2009 and completed by 14.06.2011. The shares were
released and credited to the Demat account of IFCF and Kii
limited. Between 20.08.2009 and 15.06.2011, 49.51 % of
GDRs were cancelled by IFCF and Kii iimited. The underlying
shares received by IFCF and Kii iimited were sold in the ln_dian
B
Market.
16. On behalf of SEBI it was also submitted that when
the utilization of GDR proceeds by Asahi was investigated, it
was found that most of the documents submitted by Asahi to c
SEBI were inconsistent with the statements that were available
in public domain.