2004 (7) TMI 695 - AT - SEBI

Summary

Issues Involved:
1. Whether the debentures were offered to the public or were a private placement.
2. Whether SEBI had the power to issue Guidelines without them being laid before Parliament as required under Section 31 of the SEBI Act.
3. Whether SEBI's impugned order survives for consideration in light of the Supreme Court's order allowing debenture-holders to convert their debentures into preferential shares.
4. Whether there were any grievances from the debenture-holders.
5. Whether SEBI had the power to restrain persons from accessing the securities market prior to the introduction of Section 11(4) of the Act.

Issue-wise Detailed Analysis:

1. Public Issue vs. Private Placement:
The Tribunal examined whether the debentures issued by the company were public or private placements. SEBI argued that the debentures were a public issue based on the use of agents to mobilize funds and the lack of specific names in the Board meeting minutes. However, the Tribunal found that the letter of offer explicitly stated it was a private placement, marked "Private & Confidential" and "Not for circulation." The Tribunal emphasized that merely employing agents or paying commissions does not constitute a public issue. It held that SEBI did not provide sufficient evidence to prove that the debentures were available to the public and noted the absence of investor grievances as a critical factor.

2. SEBI's Power to Issue Guidelines:
The Tribunal addressed whether SEBI could enforce Guidelines without them being laid before Parliament. It noted that the SEBI Act recognizes 'Rules' and 'Regulations,' which must be laid before Parliament, but does not define 'Guidelines.' The Tribunal concluded that while Guidelines are not regulations, they are binding until laid before Parliament due to the saving clause in Section 31. It suggested that SEBI should be empowered to issue guidelines explicitly within the Act to avoid future controversies.

3. Impact of Supreme Court Order:
The Tribunal considered the Supreme Court's order allowing debenture-holders to convert their debentures into preferential shares. It found that this order rendered SEBI's directive to refund the money to debenture-holders unenforceable. Consequently, the Tribunal set aside SEBI's order to refund the money, as the debenture-holders had opted for conversion into preferential shares.

4. Grievances from Debenture-holders:
The Tribunal examined whether there were any unresolved grievances from debenture-holders. The company submitted an affidavit stating that all grievances had been resolved, and the Tribunal found no evidence of outstanding issues. It directed the company to address any future grievances promptly.

5. SEBI's Power to Restrain Market Access:
The Tribunal considered whether SEBI had the power to restrain persons from accessing the securities market before the introduction of Section 11(4) of the Act. The Tribunal acknowledged the appellants' argument that SEBI lacked this power before the amendment. However, it chose not to make a definitive ruling on this issue, as it had already decided the case on other grounds.

Conclusion:
The Tribunal set aside SEBI's order directing the company to refund money to debenture-holders and modified the order restraining the company from accessing the capital market to the period already undergone. It emphasized the need for SEBI to define guidelines within the Act and directed the company to address any future grievances from debenture-holders.