LexSECURITIES AND EXCHANGE BOARD OF INDIA versus PANASIA ADVISORS LTD. & ANR.
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(2015] 11S.C.R.90 A SECURITIES AND EXCHANGE BOARD OF INDIA B v. PANASIAADVISORS LTD. &ANR. (Civil Appeal No.10560 of 2013) JULY06,2015 [FAKKIR MOHAMED IBRAHIM KALIFULLA AND SHIVA KIRTI SINGH, JJ.] c Securities and Exchange Board of India Act, 1992: ss.2(2), 11(1), 11(2), 11(4), 118, 12A-PowerofSEBlto probe GDRs sold by Indian Companies backed by local shares to foreign investors and listed on overseas exchange D - Respondents lead managers dealt with the Global Depository Receipts (GDRs) issued by six companies - Allegation that GDRs fictitiously created at global level by respondent to give false. appearance to the financial statement of the companies in order to mislead Indian E investors - SEBI debarring the respondents for a period of 10 years prohibiting respondents from accessing the capital market- Challenge against- Held: In the case on hand, the allegations levelled against the issuing company in connivance with the respondents are that a make believe F affair was created, as though there was genuine creation of GDRs and its investments by the foreign investors on the very date when the GDRs were issued and thereby the global performance of the issuing company in the local market of the issuing company had a boost in the commercial sector, G which lured the local investors to develop their keen interest to make the investments on a higher share value by virtue of the investment made by the foreign investors - The said fact would certainly call for a probe at the hands of SEBI on whom a duty is cast u/s. 11 (1) to protect the interest of investors in H securities and the security market - Therefore, exercise of 90 SEBI v. PANASIAADVISORS LTD. 91 jurisdiction by SEBI against the respondents was well founded A - Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 - Regns 2(1)(c), 5 - Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 - Securities B Contracts (Regulation) Act, 1956 - ss.2(h), 2(j) . s.118 - Exercise of jurisdiction under. - Scope of - Discussed. Global Depository Receipts (GDRs) - What is GDRs and how it is issued- Manner in which GDR is dealt with and how the rights in favour of the holderofGDR is created after its transfer in his favour - Discussed. c Role of Lead Manager at the time of creation and D disposal of GDRs - Discussed. s. 2(h)(i) - Securities - Meaning of - Discussed. Allowing the appeal, the Court E HELD: 1.1 A reading of Regulation .s read along with paragraphs (4) & (6) of Schedule I of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside. India) Regulations, 2000 gives a F statutory recognition to the "Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993" which came into force w.e.f 01.04.1992. Paragraph 4 (1 ), (2) & (3) and (6) of Schedule I of the 2000 Regulations in effect G authorises the issuance of Global Depository Receipts (GDRs}and the Statutory requirements to be fulfilled for the issuance of such GDRs ·to have a valid sanction under law of the Indian origin. Under paragraph 3(5) when an issuing company issues ordinary shares or H 92 SUPREME COURT REPORTS (2015] 11 S.C.R. A bonds under the 1993 Scheme, that company should deliver the ordinary shares or bonds to a Domestic Custodian Bank, who will in terms of the agreement instruct the Overseas Depository Bank to issue GDR or a certificate to non-resident investors against the shares B or bonds held by the Domestic Custodian Bank .. [Paras 45, 47, 48] [127-C-E; 129-C-D] 1.2. A GDRs can be issued for one or more underlying shares held .with the Domestic Custodian C Bank. The GDRs may be denominated in any freely convertible foreign currency. The ordinary shares under the GDRs will be denominated only in Indian currency. The issues viz., public or private placement, number of GDRs to be issued, the issue price, rate of interest D payable on foreign currency convertible bonds, the conversion price, coupon and the pricing of the conversion options would be decided by the issuing company with the Lead Manager to the issue. Once such GDRs are issued by the Overseas Depositary Bank, E which has the approval of the appropriate authorities of the Indian origin as well as appropriate regulatory authority of registered
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