A bench headed by Justice FMI Kalifulla said that when such issues have an effect on the Indian securities market, Sebi has jurisdiction to take action against the companies for manipulation in global securities
Market regulator Sebi received a shot in the arm after the Supreme Court on Monday upheld its jurisdiction to regulate the creation and issuance of Global Depository Receipts (GDRs) by companies in the offshore markets.
A bench headed by Justice FMI Kalifulla said that when such issues have an effect on the Indian securities market, Sebi also has jurisdiction to take action against the companies for manipulation in global securities.
It rejected the Securities Appellate Tribunal’s (SAT) majority decision of September 30, 2013, that set aside a Sebi order, barring Pan Asia Advisors and its promoter Arun Panchariya from capital markets for 10 years for alleged manipulation in global securities by six Indian firms. The apex court it remanded the matter back to SAT and asked it to decide the case within three months.
The conclusion of the majority judgment of SAT was that it is the RBI and/or the ministry of finance, government of India which have exclusive jurisdiction in respect of the issuance, trading and conversion of GDRs into shares abroad and such issues cannot come within the purview of the Sebi Act thereby ousting the jurisdiction of Sebi. While two SAT members, Jog Singh and AS Lamba, quashed Sebi ‘s direction on the ground that the market regulator does not have jurisdiction over the creation and issuance of GDRs abroad, presiding officer Justice JP Devadhar in his judgment upheld the Sebi’s order that barred Pan Asia Advisors and its promoter from accessing the capital market, directly or indirectly, for 10 years.
The case related to alleged irregularities in issuance of GDRs of Asahi Infrastructure & Projects, Avon Corporation, Cat Technologies, IKF Technologies, K Sera Sera and Maars Software International. The entities were found involved in dabba trading or off-market transactions.
Sebi had told the court it had received alerts about large-scale off-market transactions in its integrated market surveillance system regarding trading in scrips of certain companies. A preliminary probe revealed that some FII/sub-accounts were converting GDRs held by them in those companies into equity shares to sell in Indian markets. It was also observed that such conversions had occurred within a short period after the issue of GDRs by those companies. Pan Asia and Panchariya, by employing fraudulent arrangement with regard to the subscription of GDRs and thereafter monetising them through the sale of underlying shares of the GDRs, have violated various rules, it said.
Panchariya arranged loans for subscription to GDRs, and sold GDRs to FIIs/sub accounts who, in turn, sold the shares received from the conversion of GDRs in the Indian securities market, Sebi had argued.
The companies argued that Sebi’s jurisdiction was limited to the territory of India and acts or omission committed by a party therein.
It does not extend to transactions executed by promoters in countries outside India with respect to the issuance of GDRs since the same are governed by the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (via depository receipts mechanism) scheme, 1993, issued by the finance ministry, and the master circular on foreign investment issued by the RBI periodically, adding that Sebi has not framed norms governing GDRs for the simple reason that it lacks jurisdiction to do so, Pan Asia had argued.