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THE Supreme Court has upheld the Securities and Exchange Board of India’s (Sebi) order prohibiting 14 entities of the Bhansali group from trading in securities for three years. The market regulator took the step after irregularity in trading of Nissan Copper shares was discovered following its IPO listing on December 29, 2006.

“How does the demat system work if permutations and combinations in the name of the applicant is allowed to avail of such benefit (retail individual category). It’s a fraud,” said a bench comprising justices SH Kapadia and Swatanter Kumar.

Sebi had barred the investors for making multiple applications for shares for an aggregate value in excess of Rs 1 lakh in the retail segment of the IPO. Reportedly, the Bhansali group entities used dubious means to avoid detection in multiple applications while ensuring allotment of shares to their groups to the detriment of the retail investors. Accordingly, they were found guilty under regulation 3 (a) and (c) of the Sebi FUTP Regulation, 2003 by the regulator on December 31, 2008.

When Bhansali’s counsel stood up to argue the case, the apex court took a strong exception to the appeals challenging Sebi’s order on the issue. “426 applications were submitted by the investors through permutations and combinations in their names. And you have guts to come here,” said the bench while dismissing 18 such appeals.

Sebi's case was presented in the apex court by attorney general GE Vahanvati and advocate Pratap Venugopal.

Yogesh M Bhansali and others had came to the Supreme Court claiming “Sebi (Disclosure and Investor Protection) Guidelines, 2000 do not define multiple applications or prohibit the same”. According to the information divulged by the competent authority in response to an RTI application “they (Sebi) have not banned multiple applications and that the issuer company reserves the right to reject multiple applications,” the appellants had said.

Sebi had also directed to impound over Rs 41.61 lakh made by these investors through such transactions. Challenging it, the appellants annexed a copy of the information furnished by the competent authority. It said, “Sebi has not banned multiple applications. However, multiple applications are liable to be rejected as the issuer reserves the right to reject in its absolute discretion, all or any multiple bids received in the issue.Sebi has issued instructions to registrars advising them to take proper care and evolve suitable system whereby multiple applications can be weeded out and bring instances of multiple applications to the notice of issuer company as also the lead managers for necessary action”. Hence the order passed by Sebi was illegal, claimed the appellants.

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