1996 (10) TMI 370 - HC - Companies Law

Issues Involved:
1. Legality of NSE's postponement of Settlement No. 27.
2. Authority and jurisdiction of SEBI and NSE in the matter.
3. Rights of the petitioners (investors) in relation to the postponed settlement.
4. Validity of the investigation and actions taken by NSE and SEBI.

Issue-wise Detailed Analysis:

1. Legality of NSE's Postponement of Settlement No. 27:

The petitioners, investors who sold shares through stock brokers affiliated with NSE, challenged NSE's action of postponing Settlement No. 27 and conducting a special Settlement No. 11, which delayed the payment of monies for shares sold between 3-7-1996 and 9-7-1996. NSE justified the postponement on the grounds of suspected fraud and market manipulation involving the shares of Maruthi Organics Ltd. (MOL). NSE received numerous complaints about a well-planned fraud involving the manipulation of MOL's share prices, leading to its decision to defer the settlement and conduct an investigation. The court found that the reasons given by NSE for postponing the settlement were neither irrelevant nor insufficient, and the action was not taken for any oblique or extraneous considerations. Therefore, the court held that NSE's decision to postpone Settlement No. 27 was within its jurisdiction and justified under Regulation 2.16 of Part B of NSE Capital Market Trading Regulations, 1994.

2. Authority and Jurisdiction of SEBI and NSE in the Matter:

SEBI, established under the Securities and Exchange Board of India Act, 1992, has the duty to protect investors' interests and regulate the securities market. SEBI's powers include investigating fraudulent and unfair trade practices under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995. SEBI supported NSE's action in postponing the settlement, citing the large number of complaints and the need for a thorough investigation. SEBI directed NSE to suspend trading in MOL shares and conduct an investigation, which NSE complied with. The court noted that SEBI's directions to NSE were within its statutory powers and justified given the circumstances. SEBI's investigation into the matter was ongoing, and it had appointed an investigating officer to submit a report.

3. Rights of the Petitioners (Investors) in Relation to the Postponed Settlement:

The petitioners argued that NSE's postponement of Settlement No. 27 was arbitrary, discriminatory, and beyond its authority. They contended that NSE's action was a colorable exercise of power and that the indefinite postponement was unjust. NSE countered that the petitioners, being non-trading members, were not entitled to question its actions and should seek redressal through the grievance procedure prescribed in the contract note. The court rejected NSE's contention, stating that the petitioners could not be relegated to seeking redressal elsewhere until a final decision was taken on Settlement No. 27. The court held that NSE, being a public body performing a public duty, was amenable to writ jurisdiction under Article 226 of the Constitution.

4. Validity of the Investigation and Actions Taken by NSE and SEBI:

NSE conducted a preliminary investigation based on the complaints received and submitted a report to SEBI. SEBI, in turn, initiated its own investigation and appointed an investigating officer. The court found that NSE's postponement of the settlement was an interim measure pending the investigation and that NSE was justified in taking such action. However, the court emphasized that the postponement could not be indefinite and directed NSE to take a final decision on Settlement No. 27 within two months. The court also noted that SEBI had not issued any directions restraining NSE from taking a decision based on its investigation report.

Conclusion:

The court upheld NSE's decision to postpone Settlement No. 27, finding it justified and within its jurisdiction. It directed NSE to take a final decision on the settlement within two months, emphasizing that the postponement could not be indefinite. The court also recognized SEBI's authority and ongoing investigation into the matter, stating that SEBI's actions were within its statutory powers and justified. The petitioners' rights to seek redressal were acknowledged, but the court held that they could not do so until a final decision was made on the settlement.

← Previous Next →