The Supreme Court has asked the Securities and Exchange Board of India (SEBI) to deal sternly with companies indulging in manipulative and deceptive practises to send a clear message that market abuse will not be tolerated in the country.
“SEBI, the market regulator, has to deal sternly with companies and their directors indulging in manipulative and deceptive devices, insider trading and the like or else they will be failing in their duty to promote orderly and healthy growth of the securities market,” a bench of justices K. S. Radhakrishnan and Dipak Misra said.
The judgment assumes importance as it has come at a time when chit fund companies and the Sahara group are making headlines for illegally collecting money from people by promising attractive returns.
It will give a boost to the market regulator to deal with these companies with iron hands.
“Message should go that our country will not tolerate market abuse and that we are governed by the rule of law.
Fraud, deceit, artificiality, SEBI should ensure, have no place in the securities market of this country and market security is our motto,” it said.
People with power and money and in management of the companies, unfortunately, often commanded more respect in society than the subscribers and investors in their companies, the court observed.
“Companies are thriving with investors’ contributions but they are a divided lot. SEBI has, therefore, a duty to protect investors, individual and collective, against opportunistic behaviour of directors and insiders of the listed companies so as to safeguard market’s integrity,” the bench said.
The bench also asked the media not to mislead the public in their forecast on the securities market.
“Print and electronic media have also a solemn duty not to mislead the public, who are present and prospective investors, in their forecast on the securities market. Of course, genuine and honest opinion on market position of a company has to be welcomed. But a media projection on company’s position in the security market with a view to deriving a benefit from a position in the securities would amount to market abuse, creating artificiality,” the bench said.
The apex court said that market abuse had now become a common practice in India, and SEBI was duty bound to protect genuine investors.
“SEBI has the duty and obligation to protect ordinary genuine investors and it is empowered to do so under the SEBI Act so as to make the security market a secure and safe place to carry on the business in securities,” the bench said.
The apex court said economic offences affect not only the country’s economic growth, but also hamper inflow of foreign investment by genuine investors and casts a slur on India’s securities market.
“...market abuse has now become a common practice in the India’ security market and, if not properly curbed, the same would result in defeating the very object and purpose of the SEBI Act, which is intended to protect the interests of investors in securities and to promote the development of securities market,” the bench said.
The apex court passed the order while dismissing an appeal filed by one N. Narayanan, the promoter as well as a whole-time director of listed company Pyramid Saimira Theatre Limited (PSTL), who had challenged the SEBI order.
SEBI had, on July 28, 2011, slapped a penalty of Rs.50 lakh, and restrained him for a period of two years from buying, selling or dealing in securities for making false disclosures to the stock exchange and for not maintaining certain books of accounts.
The company told stock exchanges on January 30, 2009, that it had entered into agreement with 802 theatres as on June 30, 2008. Out of 802 agreements, the company could show only 257 original agreements to SEBI officials, which led it to conclude that the balance 545 agreements never existed.
SEBI, therefore, held that the company had made a false corporate announcement to the effect that it had entered into agreement with 802 theatres, misleading the investing public.