1. Supreme Court Upholds Sebi’s Findings about Cornering of Public Issue Shares through Illegal and Irregular Means Customer Care No. 91-11-45562222 www.taxmann.com

2. Introduction 1. In a significant judgment dated 11 th July, 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 30 th December, 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 31 st December, 2008 passed by the Whole Time Member ("WTM") and Adjudicating Officer of SEBI. The Supreme Court's decision in the case of SEBI v. 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 make an effort to participate in the progress of our economy.71 taxmann.com 143 2 Customer Care No. 91-11-45562222 www.taxmann.com

3. 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 adversely affect the faith of a commonman in the functioning of the share market. 3 Customer Care No. 91-11-45562222 www.taxmann.com

4. 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 the said shares were purchased by the 553 demat account holders, they sold the same to the said respondents at a price much lower than the market value of the shares, namely, at Rs.1,170/- per share, though the market value of each share at that point in time was much more. The modus operandi to profit illegally from such share transaction concluded in the Respondent thereafter selling the said shares at a much higher price thereon. 4 www.taxmann.com Customer Care No. 91-11-45562222

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