Allowing an appeal in Securities and Exchange Board of India v Pan Asia Advisors Ltd & Anr, the Supreme Court held that the Securities and Exchange Board of India (SEBI) had jurisdiction to initiate proceedings against an Indian company involved in issuing global depository receipts (GDRs) sold outside India and backed by Indian shares. The court said GDRs can be construed as securities under section 2(h) of the Securities Contracts (Regulation) Act, 1956.
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Pan Asia Advisors was a lead manager to GDR issuances in 2009. SEBI investigated transactions associated with these issuances and determined that the issuances were a sham. SEBI therefore restrained Pan Asia from accessing the capital market for 10 years for manipulating the market through fraudulent activities.
On appeal, the Securities Appellate Tribunal (SAT) overruled SEBI’s order, holding that only the Reserve Bank of India or the Finance Ministry could investigate such irregularities and that SEBI would have jurisdiction only when the GDRs were converted into shares and traded on Indian stock exchanges.
The Supreme Court held that SEBI can pass appropriate orders to protect the interest of investors in securities and the securities market. It also held that there is no statutory provision in either the Foreign Exchange Management Act, 1999, or the Reserve Bank of India Act, 1934, that prevents SEBI from taking action in exercise of its powers under sections 11,11B and 12A of the SEBI Act, 1992, which require it to protect the interests of Indian investors as well as the stock market in India “whenever it finds any fraud or other such misdeeds committed by any person which worked against the interests of Indian investors in securities”.
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The dispute digest is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.
