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Securities and Exchange Board of India v. M/s Opee Stock-Link Ltd.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 2252 of 2010)Decided 11 Jul 2016
Civil Appeal No. 2252 of 2010
Justice Anil R. Dave · Justice R. Banumathi

Background

During the IPOs of Jet Airways (India) Ltd. and Infrastructure Development Finance Company Ltd., shares reserved for ordinary small investors (Retail Individual Investors) were cornered by certain respondents through hundreds of demat accounts opened in the names of persons who appeared to be fronting for them. SEBI's Whole Time Member and Adjudicating Officer found this to be an illegal scheme to grab retail-quota shares via off-market transactions and penalised the respondents, but the Securities Appellate Tribunal (SAT) set aside those orders. SEBI then appealed to the Supreme Court under Section 15-Z of the SEBI Act.

Decision Breakdown

The Court found that the demat account holders behaved identically in price and timing in opaque off-market deals, strongly suggesting they were name-lenders used to corner shares meant for retail investors, and that the respondents were not acting merely as brokers since no brokerage was charged. It held that this off-market transfer of shares did not qualify as a lawful "Spot Delivery Contract" under Section 2(i) of the Securities Contracts (Regulation) Act, and so was correctly held illegal by SEBI's Whole Time Member. The Court further held that since SAT, as an appellate fact-finding body, had given no sound or specific reasons for overturning SEBI's detailed and well-reasoned findings, its order could not stand. Accordingly, the Supreme Court quashed the SAT's order and restored the original orders of SEBI's Whole Time Member and Adjudicating Officer, directing that they be given effect within two months.

Lesson Learnt

Cornering IPO shares meant for small retail investors through large numbers of proxy/name-lender demat accounts and off-market trades is illegal market manipulation, and an appellate tribunal cannot overturn a regulator's well-reasoned factual findings without giving its own specific, sound reasons for disagreeing.

Official source (sci.gov.in)View Judgment (PDF)

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