BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI

Appeal No. 211 of 2011

Date of decision: 26.4.2012

1.M/s Murli Industries Limited
101, Jai Bhawani Society, C.A. Road,
Wardhaman Nagar, Nagpur

2.Bajrang B. Maloo
101, Jai Bhawani Society, C.A. Road,
Wardhaman Nagar, Nagpur

3.Nandlal B. Maloo
101, Jai Bhawani Society, C.A. Road,
Wardhaman Nagar, Nagpur

4.Lalchand B. Maloo
101, Jai Bhawani Society, C.A. Road,
Wardhaman Nagar, Nagpur

5.Sunilkumar Maloo
101, Jai Bhawani Society, C.A. Road,
Wardhaman Nagar, Nagpur ..…Appellants

Versus

Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra Kurla Complex, Bandra (E)
Mumbai- 400 051 …… Respondent

Mr. V. Sridharan, Senior Advocate with Mr. Asish Philip Abraham, Advocate for Appellants.
Mr. Shiraz Rustomjee, Senior Advocate with Ms. Daya Gupta, Advocate for the Respondent.

CORAM : P.K. Malhotra, Member & Officiating Presiding Officer
S.S.N. Moorthy, Member
Per : P.K. Malhotra

The present appeal has been filed by the appellants against the order dated November 8, 2011 of the Securities and Exchange Board of India (the Board) declining request of Murli Industries Limited (the company) for permission to pledge shares of the promoters in favour of Bank of Baroda for rehabilitation and restructuring of the debt of the company.

2.The facts of the case, in brief, are that the Board, while conducting investigation in the alleged manipulation in the shares of the company, passed an ex parte ad-interim order dated December 2, 2010, inter alia, rest raining the promoters of the appellant company from dealing in the securities of the company in any manner whatsoever till further directions. Subsequently, these dire ctions were confirmed by the Board by its order dated March 23, 2011. On an appeal preferred by the company before this Tribunal, we declined to interfere in the matter and vide our order dated July 11, 2011 directed the Board to complete the investig ation qua the appellant expeditiously. After passing of the said order, the company appr oached the Board requesting for permission to the promoters to pledge their shares fo r the implementation of the corporate debt restructuring of the company. By the impugned order dated November 8, 2011, the Board declined the request of the appellant. Hence this appeal.

3.We have heard learned counsel on bot h sides who have taken us through the records. We are of the considered view that no interference is called for by this Tribunal at this stage. The direction given to the appellant and its promoters in the interim order is, inter alia, to ensure that the shareholding of the promoters/promoter group in the company is not altered in any manner till fu rther orders. We are in clined to agree with the Board that permission to pledge shar es by the promoters will be against the directions issued by the Board. We are not in clined to agree with the appellant that no prejudice would be caused if permission to pledge the shares is given. No doubt, by mere pledge, the shareholding of the promoters may not cha nge but, in case of default by the appellant, if pledge is invoked by the pledgee, which it has every right to do, the shareholding pattern of promoter group will change thereby frustrating the interim order passed by the Board. What cannot be done di rectly cannot be done indirectly. We are given to understand that investigation in th e matter is already ove r and the Board vide its order dated March 16, 2012 has decided to initiate adjudication proceedings against the appellant and has also confirmed direct ion to the promoters of the company to ensure that their shareholding in the comp any is not altered in any manner till the
enforcement proceedings are completed.

3.Learned senior counsel for the appellant also referred to an earlier order passed by this Tribunal on October 10, 2007 in the case of Karuna Cables Limited vs Securities and Exchange Board of India (Appeal no. 128 of 2006) where, under somewhat similar circumstances, the Tribunal modified the order passed by the Board allowing the promoters of the company to pledge promoter s’ shares with financial institutions to enable the company to raise loans. We have perused the said order. The Tribunal modified the order passed by the Board to the limited extent of allowing the promoters of the company to pledge their shares with financial institutions only because the promoters undertook that if the Board at any stage of the proceedings or on conclusion of the enquiry that may be initiated against the appellants require the shares, the promoters shall redeem those shares and make them available to the Board. The appellant in the present case is not willing to furnish any such undertaking. Therefore, the order of this Tribunal in the case of Karuna Cables is of no assistance to the appellant before us.

We, therefore, decline to interfere in the matter. The appeal is dismissed with no order as to costs.

Sd/- P.K.Malhotra Member & Officiating Presiding Officer

Sd/-
S.S.N. Moorthy
Member
26.4.2012
Prepared & Compared By: Pk