Original source document can be found at: http://www.sebi.gov.in/satorders/karuna.html
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IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No.128 of 2006
1. Karuna Cables Ltd. ......
2. Mahendra Shah Appellants
3. Hasu M. Shah
4. Mit Shah
5. Akshat Shah
6. Kirit Shah
7. Jaswant C. Shah
Versus
Securities and Exchange Board of India ...Respondent
Present : Shri P.N. Modi, Advocate for the appellants
Shri Cherag Balsara, Advocate alongwith Shri Mihir Mody,
Advocate
for the respondent
CORAM
Justice N.K. Sodhi, Presiding Officer
Arun Bhargava, Member
Utpal Bhattacharya, Member
Per: Justice N.K. Sodhi, Presiding Officer (Oral)
The Securities and Exchange Board of India (for short "the Board") noticed sharp
price variation in the scrip of Karuna Cables Ltd. (for short "the company")
listed on the Bombay Stock Exchange and the National Stock Exchange. The price
had risen during the period from February, 2005 to September, 2005. The Board
ordered investigations. During the course of the investigations it collected
some material/information on the basis on which it passed an ex-parte order
dated 29.11.2005 restraining, among others, the promoters of the appellant
company (Appellants no.2 to 7) not to buy, sell or deal in securities of the
company directly or indirectly till further orders. The company had also been
directed that it shall not issue any equity shares or any other instruments
convertible into equity shares in any manner and shall not alter its capital
structure in any manner till further directions. The persons/entities against
whom this order was passed were required to file their objections, if any,
within 15 days from the date of the order. The appellants filed their reply
and after taking that into consideration and the other material on the record,
the Board confirmed the ex-parte order by its order dated 25.7.2006. It is
against this interim order that the present appeal has been filed. The
investigations ordered by the Board were then continuing and Mr. Cherag Balsara,
Advocate appearing on behalf of the respondent states that those investigations
have now been completed. The learned counsel for the appellants has raised
several contentions challenging the impugned order on merits. Since the appeal
is directed against an interim order and the investigations are now complete and
the learned counsel for the respondent informs us that the Board is likely to
initiate action against those found guilty of having violated some provisions of
law, we are not inclined to examine the merits of the impugned order at this
stage and leave it to the Board to take final action on the investigation report
in accordance with law. The learned counsel for the respondent has assured us
that the proceedings which are being initiated against the delinquents including
the appellants shall be conducted expeditiously and they shall conclude before
the end of February, 2008.
2. The learned counsel for the appellant urged before us that the
company is involved in the manufacturing of electricity transmission cables and
that it was in the red and that its managing director and other promoters have
taken steps to bring it on track and that it has started with the manufacturing
process. He informs us that the company has received large orders for the
supply of electricity transmission cables. He argues that in order to meet
those orders, the company is in need of finances and in view of the impugned
order passed by the Board it is unable to raise loans from the financial
institutions. He wants us to modify the impugned order to the extent that
Appellants 2 to 7 be allowed to pledge their shares with financial institutions
or private financiers to raise loans to meet the financial requirements of the
company. Appellant no.2 who is the managing director of the company is in court
and he undertakes through his counsel that in case Appellants nos.2 to 7 are
allowed to pledge their shares with financiers/financial institutions and if the
Board at any stage of the proceedings or on conclusion of the enquiry which it
may initiate against the appellants, requires those shares, the promoters
(Appellants 2 to 7) shall redeem those shares, if possible, and make them
available to the Board. He further undertakes that in case it is not possible
to redeem the pledged shares, then in that event Appellants 2 to 7 shall procure
an equal quantity of shares from the market and make them available to the Board
for whatever action that it may want to take.
3. Having heard the learned counsel for the parties and in view of the
aforesaid undertakings given by the appellants through their counsel, we modify
the impugned order only to the limited extent that Appellants nos.2 to 7 are
allowed to pledge their shares with financiers/financial institutions which
pledge shall be created in accordance with law. We further direct that the
monies received by Appellants 2 to 7 on creating the pledge shall be put in the
account of the company to enable it to meet its financial requirements. The
auditors of the company shall carry out special audit of this money and submit a
quarterly certificate/report to the Board certifying that the amount received
against the pledge of shares was actually utilized for the purposes of the
company.
The appeal stands disposed off as above. We make it clear that
subject to the aforesaid modifications, all other directions issued in the
impugned order shall continue to operate. It will be open to either of the
parties to seek any further clarification/modification of this order if and when
they feel the need. No costs.
Sd/-