2015 (8) TMI 1401 - HC - Companies Law

Trading in the securities of the petitioner no.1-company suspended - SEBI regulations - alternate remedy - Held that - Section 23L of the Securities Contracts (Regulation) Act,1956 provides an alternative remedy of an appeal before the Securities Appellate Tribunal from the orders of the Stock Exchange. The running of Stock Exchange is an area of specialization requiring expertise and in view thereof the SEBI has been appointed as a Regulator. This is to ensure that dealings in the shares on the Stock Exchange, are not manipulated to the detriment of genuine investors in stock market. The decision taken by the impugned order being an interim order pending investigation is subject not only to the representation to the Stock Exchange but is also subject to appeal to the Securities Appellate Tribunal. Therefore, the submissions urged before us could be urged either in the representation before the Official of the Stock Exchange or before the Securities Appellate Tribunal in an appeal, if they choose to prefer an appeal. The relief which they are seeking from this Court is something which would be available to them by availing of statutory alternative remedy provided to them under the Securities Contracts (Regulation) Act, 1956 or by filing a representation tot he Stock Exchange. Thus, we see no reason to exercise our extraordinary writ jurisdiction in the peculiar facts of this case. So far as the issue of Regulation 21 of the bye-laws of the Bombay Stock Exchange being ultra vires of Article 14 and 19(1)(g) of the Constitution is concerned, the challenge is on the basis that the impugned interim order has been passed without following principles of natural justice etc. Firstly, it must be appreciated that principles of natural justice are not immutable. They necessarily have to yield / be modified to meet different situations. This is only an interim order and the issue of such orders pending further investigation and consideration cannot be faulted as otherwise genuine investors in the Stock Exchange may face ruin. At this stage, we, therefore, refrain from entertaining the challenge to the vires of Regulation 21 as raised by the petitioners.

Summary

Issues:
Challenge to the order of suspension of trading in securities based on market manipulation, violation of principles of natural justice, authority of the Managing Director to pass the order, staleness of facts, availability of alternative statutory remedy, and the validity of Regulation 21 of the Stock Exchange Bye-laws.

Analysis:
1. Suspension of Trading based on Market Manipulation:
The petition challenged the order of suspension of trading in the company's securities, alleging market manipulation. The petitioner argued that the order was based on stale facts and lacked urgency. However, the Stock Exchange contended that the order was necessary pending further investigation into the company's dealings. The court noted that the SEBI had set parameters for market operations, and any violation required action by the Stock Exchange to protect investors' interests. The court emphasized the specialized nature of stock market operations and deferred to the expertise of the designated authorities to decide on such matters.

2. Violation of Principles of Natural Justice:
The petitioners raised concerns about the lack of a hearing before the order was passed, alleging a violation of Article 14 of the Constitution. The court acknowledged the importance of natural justice principles but highlighted that interim orders pending investigation are crucial to prevent harm to genuine investors. As the order was temporary and subject to further review, the court refrained from entertaining the challenge to the validity of Regulation 21 on this ground.

3. Authority of Managing Director to Pass the Order:
The petitioners questioned the authority of the Managing Director to issue the order, arguing that such power rested with the Governing Board or its Executive Director. The Stock Exchange defended the Managing Director's authority, citing resolutions passed by the Governing Board authorizing the Managing Director to act on its behalf. The court accepted this explanation, noting that the Managing Director was considered the Executive Director of the Stock Exchange in previous proceedings before the Securities Appellate Tribunal.

4. Staleness of Facts and Alternative Statutory Remedy:
The petitioners contended that the facts relied upon for the order were stale, and that an alternative statutory remedy under the Securities Contracts (Regulation) Act, 1956 was available. The Stock Exchange argued that any delay in taking action could result in losses for genuine investors. The court observed that the petitioners could avail themselves of the statutory remedy by making representations to the Stock Exchange or appealing to the Securities Appellate Tribunal.

5. Validity of Regulation 21 of Stock Exchange Bye-laws:
The petitioners challenged the validity of Regulation 21 of the Stock Exchange Bye-laws, alleging it was ultra vires of Article 14 and 19(1)(g) of the Constitution. The court noted that principles of natural justice may need to be adapted in different situations, especially for interim orders aimed at protecting investors. Given the temporary nature of the order and the potential harm to genuine investors, the court declined to entertain the challenge to the validity of Regulation 21.

In conclusion, the court found no merit in the petition and dismissed it without costs, emphasizing the availability of statutory remedies and the specialized nature of stock market regulation under SEBI.