1996 (5) TMI 327 - HC - Companies Law

Summary

Issues Involved:
1. Issuance of summons by SEBI under section 11(3) of the SEBI Act, 1992.
2. Scope of SEBI's authority to call for information and conduct inquiries.
3. Interpretation of "persons associated with the securities market."
4. Applicability of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995.
5. Validity of SEBI's power to investigate buyers and sellers of securities.

Detailed Analysis:

1. Issuance of Summons by SEBI under Section 11(3) of the SEBI Act, 1992:
The petitioners challenged the issuance of summons by SEBI to appear before the Investigating Authority under section 11(3) of the SEBI Act, 1992. They argued that as purchasers of securities, they do not fall within the category of persons against whom an inquiry can be instituted or from whom information can be demanded. They contended that the statutory provisions under section 11(2)(i) read with sections 11B and 12 of the Act do not include investors like them.

2. Scope of SEBI's Authority to Call for Information and Conduct Inquiries:
The court emphasized that section 11(1) of the SEBI Act imposes a duty on SEBI to protect investors' interests and regulate the securities market. Section 11(2) is illustrative, not exhaustive, of the measures SEBI can take. The court found that SEBI has plenary powers to call for information and conduct inquiries to fulfill its duties under the Act. The power to call for information is not limited to the entities explicitly listed in section 11(2)(i) but extends to any person associated with the securities market.

3. Interpretation of "Persons Associated with the Securities Market":
The court clarified that the term "persons associated with the securities market" is not defined in the Act but should be interpreted broadly. It includes anyone who has a connection with the securities market, including buyers and sellers of securities. The court rejected the narrow interpretation that limits the term to persons enumerated in clause (ba) of section 11(2). The term encompasses all individuals and entities involved in the buying, selling, or dealing of securities.

4. Applicability of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995:
The court noted that the 1995 Regulations, framed under section 30 of the Act, have statutory force and are intended to prevent fraudulent and unfair trade practices. These regulations empower SEBI to investigate the conduct and affairs of any person dealing in securities. The court held that these regulations are consistent with the Act and provide SEBI with the authority to call for information and conduct inquiries into the activities of buyers and sellers of securities.

5. Validity of SEBI's Power to Investigate Buyers and Sellers of Securities:
The court concluded that SEBI has the power to investigate buyers and sellers of securities under the 1995 Regulations. Even if section 11(2)(i) is interpreted narrowly, the regulations explicitly provide for investigations into the conduct of any person buying or selling securities. The court dismissed the petitioners' contention that SEBI's inquiry should be limited to intermediaries and not extend to buyers and sellers.

Conclusion:
The court dismissed the petitions, holding that SEBI has the authority to issue summons and conduct inquiries into the activities of buyers and sellers of securities. The term "persons associated with the securities market" is to be interpreted broadly, and SEBI's powers under the Act and the 1995 Regulations include investigating any person involved in securities transactions. The court emphasized that SEBI's mandate to protect investors and regulate the securities market justifies its wide-ranging investigative powers.