2002 (4) TMI 831 - HC - Companies Law

Summary

Issues Involved:
1. Legality of SEBI's actions and orders, including the appointment of the enquiry officer and issuance of show-cause notices.
2. Compliance with procedural requirements under SEBI regulations.
3. Jurisdictional validity of SEBI's notice dated 10-01-2002.
4. Petitioners' right to a fair hearing and access to relevant materials.
5. Adequacy of alternative remedies available to the petitioners.

Detailed Analysis:

1. Legality of SEBI's Actions and Orders:
The petitioners challenged several actions by SEBI, including the order dated 31-05-2001 appointing an enquiry officer, show-cause notices dated 17-07-2001 and 06-10-2001, the enquiry report dated 09-01-2002, and the show-cause notice dated 10-01-2002. They argued these actions were in breach of law, regulations, and ultra vires, making them illegal and without jurisdiction. The court noted that the SEBI initiated inquiries following a market crash on 02-03-2001. The Chairman of SEBI issued a ban order on 18-04-2001, which was upheld after a post-decisional hearing on 25-05-2001, pending further enquiry.

2. Compliance with Procedural Requirements:
The petitioners contended that the enquiry officer's appointment and subsequent actions did not comply with the procedural requirements under SEBI regulations, particularly regulations 7 to 11 of the FUTP Regulations, 1995. They argued that the enquiry officer's report lacked legal evidence and procedural fairness, as no witness was examined, no document was proved, and no material was provided for cross-examination. The court observed that these procedural issues could be addressed by the SEBI Board and, if necessary, by the Securities Appellate Tribunal (SAT) and the High Court under section 15Z of the SEBI Act.

3. Jurisdictional Validity of SEBI's Notice Dated 10-01-2002:
The petitioners argued that the notice dated 10-01-2002, purportedly issued under regulation 13 of the FUTP Regulations, 1995, was without jurisdiction due to non-compliance with the pre-requisite procedures in regulations 7 to 11. The court held that while SEBI had the power to issue such a notice, the alleged procedural irregularities were matters of erroneous exercise rather than a lack of jurisdiction. The SEBI Board was deemed capable of considering these objections on merits.

4. Petitioners' Right to a Fair Hearing and Access to Relevant Materials:
The petitioners claimed they were not provided with relevant materials necessary to respond effectively to the show-cause notices. Despite this, they participated in the proceedings before the enquiry officer and SEBI Board. The court acknowledged the petitioners' grievances but emphasized that these issues could be adequately addressed through the statutory appeals process.

5. Adequacy of Alternative Remedies:
The court highlighted the availability of alternative remedies, including appeals to the SAT and further appeals to the High Court under sections 15T and 15Z of the SEBI Act. Given these remedies, the court found no justification for invoking its extraordinary jurisdiction under article 226 at this stage.

Conclusion:
The court dismissed the writ petition in limine but provided specific directions to ensure the petitioners' right to a fair hearing. The petitioners were allowed to file a comprehensive additional reply to the notice dated 10-01-2002, and the SEBI Board was directed to consider all contentions objectively and in accordance with the law. Any adverse order by SEBI would be stayed for four weeks to allow the petitioners to seek further remedies. The order under section 11B dated 25-05-2001 would remain operative until the SEBI Board's decision and for four weeks thereafter if adverse to the petitioners.