Sunday, February 24, 2013

ICL >Adjudicator's Order in SEBI case (Bank of Rajasthan)

SEBI Adjudication Order: “Persons Acting in Concert”

<> Impromptu (for sharing thoughts):

Without one concerning self about the merits or otherwise, in any manner, of the ‘adjudicatory’ order discussed, but purely for an academic debate, the key expressions as are readily identifiable from the write-up are, -“.... in a deceptive manner with the active collusion of their PACs,..” : “...only on the basis of circumstantial evidence...” and “ would be difficult to adduce any direct evidence regarding common intention or purpose...”
Perhaps, in the further proceedings most likely to follow, these are the aspects, being of a vital nature, could be expected to be gone into.
Be that as it should, purely for useful academic discussion among the legal fraternity, one has the following points to pose:
1.   Even in matters involving/having the attributes of ‘criminality’, within its meaning under the criminal law,  the concept of ‘mens rea’ is, to one’s understanding, not the only deciding criterion; though one of several others.

2.  To one’s recollection, in court cases adjudicating on similar issues but arising under the taxation laws, -adjudicated in recent times, on the critically core areas such as, ‘Form v Substance’,  ‘Evasion v Avoidance’, -the judiciary , in one’s understanding, has not considered it prudent to go by or accept pleadings pitched on the patently dubious, besides being highly  vague theoretical ideas, of, - ‘intention’, ‘purpose’, so on.

3.     Likewise, the concepts of ‘relation’ , ‘related party’ , or the like, cannot , in the view taken by courts, in one's own conviction rightly so, be the deciding criterion, and in no event be the sole one, in disputes  pivoted on the genuineness or legal validity of any commercial transaction.

-       may be contd.

< contd.:

To Add-on (further thoughts):
1.       As indicated, the concepts of ‘intention’, ‘purpose’ and the like have, time and again, come to be seriously discussed /adjudicated in the context of the law on income-tax. To pin point, those are mainly instances in which amendments of the law were resorted to, many times retrospectively, by invoking those excuses, subjectively, by way of justifying the changes  made. For an elaboration of the viewpoints focussed on, reference be made to the published article, -169 Taxman (Mag) pg. 14.
2.       As regards the controversy  rested on the other concept of ‘related ‘ party transactions , lately that has assumed greater momentum,  in the  closely connected context of the enactment newly made, popularly known as “transfer pricing provisions”.  In the IT Act, section 245R provides that the AAR shall not allow the application to him for an advance ruling if the question raised “relates to a transaction or issue which is designed prima facie for the avoidance of income-tax.”  According to the view as canvassed in a published article the said enactment is patently illogical, being devoid of any rational justification.  This is an aspect dealt with in detail in the article, - 166 Taxman (Mag), 72.
3.     The concluding paragraph above refers to ‘circumstantial evidence’.  On an independent reading of the AO’s order, however, one finds no such ‘evidence’ made a mention of or borne out.
4.      In any case, the following noteworthy observations seem to suggest to the contrary, and convey a different impression:
 “79. While it has been concluded hereinabove that certain Noticees, as named above, have violated the provisions of 11 (2) of the SAST Regulations, the consequences thereon for such violations ought to follow. However, in this instant case, the target company, that is, BoR, has already been merged with another entity and the company has ceased to exist. Given these peculiar circumstances, the issue is being considered a fit case of imposing a monetary penalty.” @

@ The point sought to be made in the previous comment will be better appreciated by reading also the preceding paragraph 78, reproduced below:
“78. It is difficult, in cases of such nature, to quantify exactly the disproportionate gains or unfair advantage enjoyed by an entity and the consequent losses suffered by the investors. I have noted that the investigation report also does not dwell on the extent of specific gains made by the Noticees. However the manipulations as elaborated above are a threat to the safety and integrity of market and thus loss to the investors to that extent. I observe that the game plan of the Noticees continued for over a period of more than two years and hence was of a repetitive nature.”
In one’s understanding, the case on hand has been decided to be a fit one for imposing penalty, more on the grounds of a technical or venial breach of the SEBI made regulatoy rules (not strictly legislature made rules as of any 'staute'), rather than on any conclusively evidenced/proven circumstances pointing to strictly a ‘fraud’ within its criminal sense; or, to borrow terms from tax cases, even any ‘conduct contumacious’ in ‘defiance of the law’. As one imagines, either immediately or at a later point in time ,- that is if and when the impost happens to be finally upheld,- in deciding any claim for its tax deductibility, the foregoing aspects may be expected to be pressed into service by the impostees.

These observations volunteered ab extra with a view to completeness of the other taxation angle involved may be found to be in line with the plethora of decided court cases under the law on income-tax.
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Cr. ref.


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