1998 (11) TMI 696 - HC - SEBI

Summary

Issues Involved:
1. Impugning SEBI's order prohibiting fresh business by stock brokers.
2. Intervention by Shri Jasmin B. Shah.
3. Challenge to the vires of Sections 11 and 11B of the SEBI Act, 1992.
4. Allegation of violation of natural justice.
5. Authority of SEBI Chairman to issue the impugned order.
6. Availability of alternative remedy of appeal.
7. Interim reliefs sought by petitioners.

Detailed Analysis:

1. Impugning SEBI's Order Prohibiting Fresh Business by Stock Brokers:
The petitioners challenged SEBI's order dated October 30, 1998, which directed them not to undertake any fresh business as brokers until the completion of inquiry proceedings under regulation 28 of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992, and regulation 13 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 1995. The order was to come into effect from November 2, 1998.

2. Intervention by Shri Jasmin B. Shah:
A chamber summons was filed by Shri Jasmin B. Shah seeking intervention in the petitions and permission to make submissions on the merits of the case. The court granted leave for intervention under Rule 121 of the High Court, Original Side Rules, allowing the intervener to make submissions on the merits of the case.

3. Challenge to the Vires of Sections 11 and 11B of the SEBI Act, 1992:
The petitioners raised a challenge to the vires of Sections 11 and 11B of the SEBI Act, 1992. The court issued a rule and directed notice to be issued to the Attorney-General of India.

4. Allegation of Violation of Natural Justice:
The petitioners contended that the SEBI order was passed without notice and without offering a reasonable opportunity to be heard, violating the principles of natural justice. They argued that the order deprived them of their fundamental right to carry on business without following the procedure provided under the SEBI Regulations, 1992, thus contravening Articles 19, 21, and 14 of the Constitution.

5. Authority of SEBI Chairman to Issue the Impugned Order:
The petitioners argued that the impugned order was issued by the SEBI Chairman and not by the Board, as required by Section 11B of the SEBI Act. The court noted that Section 4(3) of the SEBI Act provides that the chairman may exercise all powers and do all acts and things which may be exercised or done by the Board. Additionally, Section 19 allows the Board to delegate its powers to the chairman. The court found that the Board had delegated its powers to the chairman, thus justifying the chairman's action.

6. Availability of Alternative Remedy of Appeal:
The respondents argued that the petitioners had an alternative and efficacious remedy of appeal under Section 20 of the Act and regulation 32 of the SEBI Regulations. The court held that the availability of an alternative remedy does not oust the exercise of writ jurisdiction and that the petitioners were justified in moving the court due to the urgency of the matter.

7. Interim Reliefs Sought by Petitioners:
The court found that the petitioners failed to make out a prima facie case for interim reliefs. The court held that the impugned order was an interim measure justified under Section 11B of the SEBI Act, intended to protect the interests of investors and maintain the integrity of the market. The court vacated the ad interim orders passed on November 1 and November 3, 1998, but allowed the petitioners to trade in shares and securities other than BPL, Videocon, Sterlite, and Nedungadi Bank Ltd. for a period of four weeks.

Conclusion:
The court upheld SEBI's order prohibiting the petitioners from undertaking fresh business as brokers, finding it justified as an interim measure under Section 11B of the SEBI Act. The court allowed intervention by Shri Jasmin B. Shah and issued a rule regarding the challenge to the vires of Sections 11 and 11B of the SEBI Act. The court found no violation of natural justice and confirmed the authority of the SEBI Chairman to issue the impugned order. The availability of an alternative remedy did not preclude the exercise of writ jurisdiction. The petitioners were granted limited interim relief to trade in certain shares and securities for four weeks.