Transfer of shares of retail investors via fake demat accounts amounted to unfair trade practice: SC

SEBI’s investigations revealed that shares meant for Retail Individual Investor’s were cornered by the respondent through hundreds of benami/fictitious demat account holders in violation of the provisions of Section 12A (a), (b), (c) of the SEBI Act, 1992, However, SAT set aside order passed by SEBI without mentioning any strong and justifiable reason. Thus, impugned order of SAT was liable to be quashed

Facts:

a) In matter of IPO of two companies, it was brought to the notice of the SEBI that several serious irregularities/illegalities had been committed by respondents so as to corner shares of the said companies by adopting certain unscrupulous, immoral and improper

b) As a result, the respondents got undue benefit. They got the shares transferred from the so called demat holders by way of off market trading at a price which was less than the market price of the shares.

c) SEBI’s investigations revealed that shares meant for Retail Individual Investor’s were cornered by the respondent through hundreds of benami/fictitious demat account holders in violation of the provisions of Section 12A (a), (b), (c) of the SEBI Act, 1992 and Regulations 3 and 4(1) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003

d) However, on appeal, the SAT set aside order passed by SEBI without mentioning any strong and justifiable reason.

The Supreme Court held as under:

1) Considering the facts and circumstances of the present case, the transfer of shares did not comply with the requirements of the provision of either Section 13 or Section 2(i) of the SCRA. Therefore, the off market trading indulged into by the Respondents was rightly held to be per se illegal by the Whole Time Member of SEBI.

2) For coming to a definite conclusion contrary to the findings arrived at by the lower authority, the Appellate Authority, in instant case, the SAT, ought to have recorded specific reasons for arriving at a different conclusion since the SAT set aside SEBI’s order without mentioning any strong and justifiable reason such impugned order of SAT was liable to be quashed - [2016] 71 taxmann.com 143 (SC)