2010 (4) TMI 601 - HC - Companies Law

Prospectus and allotment and other matters relating to issue of shares or debentures - Powers of SEBI

Summary

Issues Involved:
1. Locus standi of the petitioner.
2. Alleged mis-statement in the prospectus.
3. SEBI's statutory obligations and powers.
4. Transfer of shares and control over SEPL.
5. SEBI's response to the petitioner's complaint.
6. Jurisdiction and scope of SEBI's authority.

Issue-wise Detailed Analysis:

1. Locus Standi of the Petitioner:
The respondent SEBI raised a preliminary objection regarding the locus standi of the petitioner, arguing that the petitioner is not an investor in the securities market and thus has no standing to file the petition. SEBI contended that SEPL is an unlisted company and not subject to SEBI regulations and guidelines. The court considered this argument but did not dismiss the petition on these grounds.

2. Alleged Mis-statement in the Prospectus:
The petitioner alleged that DLF Limited and SEPL "ensnared and cheated" him, failing to disclose an FIR registered against SEPL in the Red Herring Prospectus (RHP). He argued that SEPL's shareholding was hurriedly transferred to avoid disclosure of pending litigation. The court noted that SEBI Guidelines require disclosure of outstanding litigation involving the issuer company and its associates. The court found that SEBI did not have complete facts initially but should have investigated further after receiving additional information.

3. SEBI's Statutory Obligations and Powers:
The petitioner's counsel argued that SEBI has the power under sections 55A and 11B of the SEBI Act to investigate and issue directions concerning mis-statements in the prospectus. The court agreed, emphasizing that SEBI has both preventive and corrective roles and should ensure complete and truthful disclosure in prospectuses. The court highlighted SEBI's duty to act promptly and protect investor interests.

4. Transfer of Shares and Control Over SEPL:
The petitioner provided details of the transfer of SEPL's shares from DLF subsidiaries to other entities, alleging these transactions were designed to avoid disclosure. The court noted these transactions and found that SEBI should have investigated the ownership and control of SEPL, especially given the subsequent transfer of shares to spouses of DLF executives.

5. SEBI's Response to the Petitioner's Complaint:
The court found SEBI's initial response to the petitioner's complaint inadequate. SEBI relied on information from merchant bankers without conducting an independent investigation. The court directed SEBI to undertake a thorough investigation into the petitioner's complaints and the transactions involving SEPL's shares.

6. Jurisdiction and Scope of SEBI's Authority:
The court rejected the argument that SEBI's jurisdiction under section 55A of the Companies Act does not cover mis-statements in the prospectus. It clarified that SEBI is empowered to investigate such matters and take necessary actions. The court also distinguished the present case from a Calcutta High Court judgment, emphasizing SEBI's statutory duties under the SEBI Act and Companies Act.

Conclusion:
The court directed SEBI to complete its investigation within three months and communicate the findings to the petitioner. It clarified that its observations did not preclude SEBI from independently assessing the case and taking appropriate actions. The petition and pending applications were disposed of accordingly.