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Mr. Kumar Desai and Ms. Daya Gupta, Advocates for the Respondent. CORAM : Justice N.K. Sodhi, Presiding Officer Samar Ray, Member Per : Justice N.K. Sodhi, Presiding Officer Whether the appellants had cornered the retail portion of the shares issued by Jet Airways Limited and Infrastructure Development Finance Company Limited in the Initial Public Offerings (IPOs) made by them is the short question that arises for our consideration in this bunch of five Appeals no.16 to 20 of 2009. These appeals raise similar questions of law and fact and are being disposed of by a common order. Since arguments were addressed in Appeal no. 20 of 2009, the facts are being taken from this case and reference to the facts in other appeals shall be made wherever necessary. Counsel for the parties are agreed that the decision in this case shall govern the other appeals as well. These appeals are an offshoot of the Initial Public Offerings (IPO) scam that was unearthed by the Securities and Exchange Board of India (for short the Board) in the year 2005-06. The Board received some information regarding the alleged abuse and misuse of the IPO allotment process. It initiated a probe. A preliminary analysis of the buying, selling and dealing in the shares issued through IPOs of various companies during the period 2003-05 showed that certain entities opened many demat accounts in fictitious/benami names and the said entities had cornered/acquired the shares of those companies allotted in the IPOs by making applications in fictitious/benami names with each of the applications being of small value so as to make it eligible for allotment under the retail category. Investigations further revealed that subsequent to the allotment of IPO shares, the fictitious/benami allottees transferred the said shares to their principals who were identified by the Board as key operators/master account holders. The Board was prima facie of the view that thousands of entities in whose names demat accounts and bank accounts had been opened and IPO applications made were either benami (name lenders) or non-existent. Pending investigations, the Board by an ad-interim ex- parte order dated April 27, 2006, inter alia, directed Shri Deepakkumar Shantilal Jain and Opee Stock-Link Limited, the appellants now before us, not to buy, sell or deal in the securities market including the IPOs directly or indirectly till further orders. In this interim order the Board noticed that several key operators/master account holders along with financiers through a large number of afferent accounts had manipulated the IPO allotment process by cornering a substantial number of shares allotted in the IPOs which were meant for retail individual investors. In the interim order, the Board defined the terms 'financier', 'key operators' and 'afferent accounts' as under:

4. In order to appreciate the rival contentions of the parties, it is necessary to notice what the IPO scam was. The Board in its omnibus order of April 27, 2006 referred to above, had spelt out the common modus operandi resorted to by a very large number of entities by which they cornered the IPO shares issued by several companies meant for the retail individual investors. Retail individual investor is one who applies or bids for securities of or for a value of not more than Rs.50,000 which amount was subsequently raised to Rs.1 lac w.e.f. 4.4.2005. It must also be remembered that before one could apply for shares, it was necessary for the applicant to have a demat account in which the shares could be credited on allotment. Large number of entities had cornered IPO shares reserved for retail applicants by making applications in the retail category through the medium of thousands of fictitious/benami IPO applicants with each of the application being for small value so as to be eligible for allotment under the retail category. Such entities had, before applying, opened demat accounts in the names of the applicants which too were fictitious/benami. All these applications had been sponsored / financed directly or indirectly by those who were the ultimate beneficiaries of the scam. The strategy adopted was that subsequent to the receipt of IPO allotment, these fictitious/benami allottees transferred the shares to their principals who controlled their accounts and who, in turn, transferred the shares to the financiers that had originally made available the funds for executing the game plan. In view of the booming market, financiers then sold most of these shares on the first day of listing or soon thereafter thereby making a windfall gain of the price difference between issue price and the listing price. In the very scheme of things, the manipulative process of cornering IPO shares started with the opening of fictitious /benami demat accounts. In other words, opening of such accounts was the first step towards achieving the sinister object of cornering retail allotment. The second step in the manipulative process as pictorially depicted in the order of April 27,2006 and referred to in paragraph 1 above, is the transfer of shares from the fictitious/benami demat accounts to the demat accounts of the key operators for temporary parking of credits for onward transfer to the financiers who were the ultimate beneficiaries of the scam. The third step was the transfer of the temporary credits from the demat accounts of the key operators to the financiers who had financed the entire game plan and with the sale of shares by the financiers, the IPO scam was complete. In the order dated April 27, 2006 which was subsequently confirmed and on the basis of which the show cause notice was issued to the appellants before us, the first appellant and Deepakkumar Shantilal Jain (appellant in Appeals no. 17 and 19 of 2009) have been identified as key operators in the IPO scam which allegation they have emphatically denied. Now let us see what the whole time member of the Board has found against the appellants in the impugned order. He has recorded a categorical finding in para 10(e) that there is no material on the record to establish that the 553 demat account holders from whom the shares were transferred in the name of the first appellant were benami or fictitious. This is what he has said in this paragraph:

Even though the 553 demat accounts and their account holders from whom the shares were transferred to the first appellant were genuine, the impugned order holds that all of them were name lenders and were hand-in-glove with the appellants. He has given reasons to arrive at this conclusion which we shall deal with a little later. Since all the 553 demat accounts and their holders were genuine, they do not fit into the manipulative scheme of the IPO scam. As already noticed, the IPO scam started with thousands of fictitious applicants applying for allotment of shares in the retail category after opening fictitious/benami demat accounts. In view of the finding recorded by the whole time member that the 553 demat accounts were genuine, the very first link in the IPO scam chain, so far as the appellants are concerned, is broken. It follows from the finding that not only the demat accounts but also the applicants who applied for the IPO shares were genuine retail investors. It is not the case of the Board that the applications filed by the 553 demat account holders for the allotment of IPO shares in the retail category had been financed by the appellants. In the absence of such an allegation, it cannot but be presumed that genuine retail investors with proper demat accounts had applied for shares with their own funds and were allotted IPO shares in the retail category. Can such an allotment be described as 'cornering of shares' in the IPO. The answer to this question can only be in the negative. We are unable to agree with the whole time member that the genuineness of the 553 demat accounts and their holders does not make any material difference to the main charge levelled against the appellants that they cornered the shares in the IPO allotment.

They are also not the financiers as per the meaning assigned to this term in the context of the IPO scam. It is common case of the parties that the appellants had not financed any application for the allotment of IPO shares. In this view of the matter, the entire IPO scam syndrome qua the appellants fails.

6. What actually happened in the present case was that genuine retail investors holding proper demat accounts had applied for the shares in the IPO of Jet Airways Limited in the retail category. The retail segment of the issue was oversubscribed by 2.9 times and, therefore, in consultation with NSE, the issuer company finalized the basis of allocation to the retail investors. It is not in dispute that the maximum shares that were allotted to any retail investor was 14 or less. From the chart showing the basis of allocation to the retail investors which was produced before us during the course of the hearing, it is clear that the retail investors were allotted shares in packages of 6,8,10,12 & 14 depending upon the number of shares applied for. Once the allotment was made to the retail investors and shares credited to their demat accounts, the allotment process in the IPO was complete and the allottees were free to trade those shares in the secondary market even before the listing. Since the shares were initially allotted to the retail investors on the basis of the applications filed by them with their own funds, it cannot be said that there was any cornering of shares in the allotment of IPO shares. As already noticed, the shares were allotted to the retail investors not as benamis as they had applied with their own funds and it was thereafter that they sold the shares to the appellants in the secondary market in off-market transactions at the rate of Rs. 1170 per share. Off-market transactions are per se not illegal and this is not the charge against the appellants either. There is nothing to debar the allottees to trade the shares in the secondary market after receiving the allotment under the retail category. Trading and speculation are the two basic activities in the securities market and the Board as a regulator steps in only when such trade or speculation violate the provisions of the securities laws which are meant to protect the market integrity and interest of the investors. We see no such transgression in the instant case. Once the allotment is made in the primary market by the issuer companies to the genuine applicants, there is nothing to stop them from trading those shares in the secondary market immediately thereafter, which quite a few investors do, and this is what the securities market is all about. When we look at the break-up of the shares that were transferred/sold by the 553 retail investors to the first appellant in off- market transactions, it is clear that majority of the shares were transferred before listing, that is, till the price discovery mechanism of the exchanges was activated which happened only on and after the date of listing. The IPO opened on February 18, 2005 and closed on February 24, 2005 and the shares were listed on March 14, 2005. There is good reason for some of the small-time investors to dispose of their shares even before they are listed because they have a limited financial and risk taking capacity. Because of the uncertainty as to the price of the scrip on its listing, which may be higher than the issue price or could be even lower, the small-time investors do not mind trading in those shares at a lower but safe margin. In the instant case, the issue price was Rs.1100 and the demat account holders sold them at Rs.1170 to the first appellant. The shares which were listed on March 14, 2005 opened at Rs.1211 per share and closed at Rs.1305 per share and the lowest price during the course of the day at which the shares traded is Rs.1172. In this background, there is nothing unusual if the retail investors sold/transferred their shares at Rs.1170 per share. Since the appellants purchased the shares from all the demat account holders in the secondary market after those had been allotted to them by the issuer company and unless it can be shown that the allotment was benami/fictitious, it cannot be held that the appellants cornered the shares in the IPO allotment. There is no question of cornering shares in the secondary market and, if one were to do that, it would be perfectly lawful and justified so long as the disclosure and other legal requirements are complied with. We are, therefore, satisfied that there was no cornering of shares by the appellants.