INDIA BUSINESS WORLD - JANUARY 16th - JANUARY 31st
- 2008
SEBI MOVES SUPREME COURT FOR STAY ON SAT'S DSQ ORDER
The Securities & Exchange Board of India (Sebi) has moved the Supreme Court, seeking an interim direction against a Securities Appellate Tribunal (SAT) order on DSQ shares. The DSQ case is one of the biggest frauds since dematerialised shares were introduced, where the depository system was misused to make illegal gains. The tribunal, in its order passed on March 7, 2006, had asked the authority to identify investors who had invested in the unlisted shares and not the shares itself.
Sebi, in its application filed through advocate Pratap Venugopal, said that tribunal's order is unworkable and cannot be executed on the following grounds:
The 1.3 crore unlisted shares of DSQ cannot be identified as they are dematerialised shares (which is precondition for trade on the stock exchanges) and fungible in nature and have merged with the other duly listed shares of the company. Demat account only ascertains the number of shares held in an account, but cannot identify as to which individual shares constitute the balance. It is like a bank account, where the balance of account can be ascertained, but the exact currency notes which constitute the balance cannot be identified. Hence the SAT order to segregate 1.3 crore unlisted shares cannot be implemented, Sebi said.
It is also impossible to identify the original investors, who bought the unlisted shares of DSQ, because the volume of company shares traded were extremely high during the relevant time, Sebi said. Unlisted shares were introduced in the secondary market through various brokers, who held listed shares as well.
Sebi argued that, it is not possible to segregate the investors who bought unlisted shares from those who bought listed shares from brokers during the relevant time. Therefore, it is hard to ascertain whether investors are now holding unlisted shares or listed shares.
On September 9, 2004, Sebi asked the company to deposit a sum of Rs 630 crore, the value of 1.3 crore shares, taking into account the average price of the scrips during the relevant time in an escrow account. It directed the company to buy back the 1.3 crore unlisted shares.
Sebi has filed in its application, that the above move will compensate the loss incurred by the investors.
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