IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

Appeal No.128 of 2006

1.  Karuna Cables Ltd. 2.  Mahendra Shah 3.  Hasu M. Shah 4.  Mit Shah 5.  Akshat Shah 6.  Kirit Shah 7.  Jaswant C. Shah	......  Appellants
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.