28 July 2015

SEBI has jurisdiction in respect of GDRs

Supreme Court of India has upheld the jurisdiction of SEBI to exercise its powers under the provisions of the Securities and Exchange Board of India Act, 1992 and Securities Contracts (Regulation) Act, 1956 read along with the Regulations, to proceed against the Lead Manager for the so called fraudulent transaction in respect of issuance of Global Depository Receipts (GDRs). The Court in this regard rejected the contention that as from cradle to grave GDRs are dealt with outside the country in the global market, SEBI lacks jurisdiction in proceeding against the managers.
Noting that existence of GDRs is always dependent upon the extent of underlying ordinary shares lying with the domestic custodian bank, the Court also observed that GDRs would fall within the definition of ‘securities’ as defined under Section 2(h) of the SCR Act. It was held that even if GDR as such is not specifically referred to under the definition of ‘securities’ under said provision, by virtue of sub-clause (iii) of the said section, any rights or interests in securities would also fall within the definition of securities.
Further, observing that power vested with SEBI for passing such orders, restraining person from accessing the securities market and prohibiting any person associated with securities market to buy, sell or deal in securities, can even be exercised against “any person”, the Court stated that the Board is fully empowered to pass appropriate orders to protect the interest of investors in securities and securities market. The Supreme Court in this regard, by its judgement dated 6-7-2015, also took note of the nature of allegations and was of the view that SEBI has got every jurisdiction to proceed against the Lead Manager as well as the issuing company.
It was also held that there is no statutory prohibition either under FEMA or the RBI Act preventing SEBI from taking action in exercise of its powers under Section 11, 11B and 12A of the SEBI Act, 1992, and that specific provisions of SEBI Act, 1992 provided for necessary powers with the SEBI casting a duty on it to protect the interests of the Indian investors.


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