Customer Care No.

91-1145562222

Supreme Court Upholds Sebis

Findings about Cornering of
Public Issue Shares through
Illegal and Irregular Means
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Introduction
1.In a significant judgment dated 11thJuly, 2016, the
Hon'ble Supreme Court of India disposed of five appeals
filed in 2010 by the Securities & Exchange Board of India
("SEBI") against the impugned order dated 30thDecember,
2009 passed by the Securities Appellate Tribunal, Mumbai
("SAT") whereby the SAT had allowed the appeals filed by
the Respondents, setting aside the orders dated
31stDecember, 2008 passed by the Whole Time Member
("WTM") and Adjudicating Officer of SEBI. The Supreme
Court's decision in the case ofSEBIv.Opee Stock-Link
Ltd.[2016]71 taxmann.com 143(in
short
"IPO
Judgment") has been and points out in no uncertain terms
that illegalities and irregularities associated with the
dealings in the Stock Exchanges will be dealt with strictly as
it impinges on the confidence of the small retail individual
investors with relatively less means who desire to invest
their hard earned money into shares of companies, whereby
they
can also
an effort to participate in the progress
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The Supreme Court also commented that SEBI Act has been enacted and SEBI has been
entrusted with the task of seeing that the Stock Exchanges of the country and the persons
connected therewith do not indulge themselves into illegalities or irregularities; that the SEBI Act
mandates the SEBI officials to see that no financial scams take place in the matters relating to
issue or transfer of shares, management of the Stock Exchanges, etc. The Supreme Court also
highlighted that one of the important duties of the functionaries under the SEBI Act is to see that
when there is an Initial Public Offerings (IPO) and the shares are offered to public at large in a
particular manner, so that even small investors (who are referred to as "Retail Individual
Investors" or 'RII') also get fairly good chance to purchase shares of newly floated companies or
shares of existing companies, as and when they are offered to the public at large.
Brief Facts-Case of SEBI v. Opee Stock Link Limited
2.Brief facts leading to the aforesaid IPO Judgment were that there was an initial public offering
('IPO') by Jet Airways Limited and Infrastructure Development Finance Company Limited. When
shares of the aforesaid companies were offered to the public at large, the issue of shares in
relation to both the companies had been over-subscribed. However, it was brought to the notice
of the SEBI that several serious irregularities and illegalities had been committed by some
persons so as to corner the shares of the said companies by adopting certain unscrupulous,
immoral and improper methods not known to the law, which had not only affected the RII, but
had also an effect on the share market, because such dealings by certain greedy persons would
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The basic purpose with which the SEBI Act was enacted was to see that the share market
functions properly and effectively so that ultimately it may not adversely affect the economy of
our country. Upon investigations made by the SEBI it was discovered that the shares of the
aforesaid two companies which were meant to be issued to the RIIs through the IPO, were
actually found to have been cornered through hundreds of benami/fictitious demat account
holders. Such tactic of cornering shares by means of fictitious demat account holders was a
clear violation of the provisions of section 12A(a), (b) and (c) of the SEBI Act, 1992, apart from
violating the provisions of Regulations 3 and 4(1) of the SEBI (Prohibition of Fraudulent and
Unfair Trade Practices Relating to Securities Markets) Regulations, 2003.
The Supreme Court deemed it fit to make references to the IPO scam of the shares issued by Jet
Airways India Limited only as the facts and circumstances surrounding the applications for
shares made in respect of both the companies and the parties involved, were common. The
Court noted that the respondent in Appeal No. 20 of 2009 before the SAT had received a total of
12,053 shares in 3 tranches, namely, 3,272 shares, which were transferred before the day of
listing of the company's shares with the stock exchange (i.e., before the day of the scheduled
IPO on March 14, 2005); 3,598 shares on the day of the listing; and 5,183 shares after the day of
listing. The most shocking fact that was revealed before the SEBI and eventually the Supreme
Court was that the aforesaid 12,053 shares were purchased through off market transactions
from 553 de-mat account holders, who had been allotted the shares of the said company.
Once theCare
saidNo.
shares
were purchased by the 553 demat account holders, theywww.taxmann.com
sold the same to
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