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2023 (1) TMI 458 - HC - SEBIInquiring into complaints by SEBI - Power conferred on the investigating authority - reasonable ground to believed that transactions in securities - purpose of empowering the SEBI to investigate - investigative process undertaken by respondent No.3 - investigations conducted prior to ordering investigation u/s 11C - HELD THAT - In the instant case respondent No.3 was designated as an investigating authority in order to enable the Board to investigate into the dealings in the scrip of Omaxe Ltd. on the basis that there was a reasonable ground to believed that transactions in securities were dealt with in a manner detrimental to the investors or securities market. It is in exercise of this inquisitorial power conferred under Sec.11C that respondent No.3 issued summons to the petitioners to investigate as to whether the petitioners had anything to do with the buy recommendations made in the scrip of Omaxe Ltd during 01.06.2020 to 01.07.2020. The basis for the investigation is the document provided by the telemarketer M/s Mobonair Wireless Pvt. Ltd. which had informed the Board that SMS recommendations were sent by the petitioner No.1, and it had also provided document alongwith its email dt.10.08.2022. When the Board has been conferred an investigative power by Parliament, and when a complaint is received against an Investment Advisor such as petitioner no.1, the Board has a statutory duty to investigate it; and in the course of such investigation, it can ask for information from the persons against whom such allegations are leveled, to assist it in the investigation. The penalty of imprisonment of a term which would extends to one year or fine which would extend to 1 Crore become leviable under sub section (6) of Section 11 C only if without reasonable cause a person were to refuse to produce before the investigating authority the books, registers and other documents or furnish information which is his duty to furnish or refuses to appear before the investigating authority personally or to answer any question which is put to him by the investigating authority or to sign the notes of any examination referred to in sub section (7). The punishment of imprisonment or fine will be imposed under Sec.11C(6) only after a complaint is lodged before a competent criminal court by SEBI against the person refusing to cooperate in the investigative process and the said court will consider whether in the facts and circumstances of the case, such refusal is bonafide and whether punishment ought to be imposed and if so, to what extent. There are, thus, adequate safeguards provided in the enactment itself against any misuse of the power. The petitioner has not been able to show that powers conferred on the SBI by Sec.11 C (3), (5), (6) and (7) interfere or violate in any way and fundamental rights conferred upon the petitioners by Article 19(1) (a), 20(3) and 21 of the Constitution of India. Such powers are necessary to be exercised in public interest and to protect investors. If the case of the petitioners is that the documents on the basis of which summons were issued to the petitioners are forged documents and they are not guilty of the allegations of giving buy recommendations in the scrip of Omaxe Ltd. at all, they have a duty to assist in the investigative process undertaken by respondent No.3 and place whatever material they have in their possession to enable the investigating authority to complete the investigation and place the report thereon before the Board. Therefore, no case has been made out by petitioners for quashing the impugned summons issued for physical appearance of petitioner No.2 and other Directors. So the prayer made in that regard is rejected. As regards the prayer of the petitioners for directing respondent No.4 to register FIR and take other necessary action against Ms. Vishal Shah and M/s. Mobonair Wireless Pvt. Ltd. and others is concerned, in the event the Police is not registering the FIR on the complaint lodged by the petitioners, they have an effective alternate remedy vested under Section 154(3) Cr.PC by giving complaint in writing to the Superintendent of Police concerned; and in spite of that if their grievance persists, then they could approach the Magistrate under Section 156 (3) Cr.P.C.
Issues Involved:
1. Legality of Sections 11C(3), 11C(5), 11C(6), and 11C(7) of the SEBI Act. 2. Constitutionality of summons for physical appearance of all Directors. 3. Request for directing respondent No.4 to register FIR against Vishal Shah and M/s. Mobonair Wireless Pvt. Ltd. Issue-wise Detailed Analysis: 1. Legality of Sections 11C(3), 11C(5), 11C(6), and 11C(7) of the SEBI Act: The petitioners contended that Sections 11C(3), 11C(5), 11C(6), and 11C(7) of the SEBI Act deprived them of their fundamental rights, including freedom of speech and expression, protection against self-incrimination, and right to life and liberty. They argued that these provisions forced them to make statements on oath or produce documents under the penalty of imprisonment or fine. The court held that the power to conduct investigations conferred on SEBI by Section 11C is inquisitorial and not quasi-judicial. This power is necessary to protect investors and the securities market. The court referred to the Delhi High Court's decision in DLF Ltd. v. Securities and Exchange Board of India, which stated that SEBI's powers under Section 11C are inquisitorial and do not require a hearing before ordering an investigation. The court agreed with this view and emphasized that the power to investigate does not adversely affect any person or intermediary by itself. The court concluded that the provisions under Section 11C are necessary to ensure thorough investigations and do not violate the fundamental rights of the petitioners. Adequate safeguards are provided in the enactment against misuse of power, and penalties under Section 11C(6) would only be imposed after due process in a competent criminal court. 2. Constitutionality of Summons for Physical Appearance of All Directors: The petitioners argued that the summons for the physical appearance of all Directors were unconstitutional, unreasonable, and amounted to harassment. They requested that only one Director, Shailesh Goyal, be permitted to appear on behalf of the company. The court noted that SEBI has a statutory duty to investigate complaints against investment advisors and can ask for information from the persons against whom allegations are leveled. The court emphasized that cooperation from the persons being investigated is essential for a thorough investigation. The court found that the summons issued for the physical appearance of the Directors were within the powers conferred under Section 11C and necessary for the investigation. The court concluded that no case was made out by the petitioners for quashing the impugned summons and rejected the prayer in that regard. 3. Request for Directing Respondent No.4 to Register FIR Against Vishal Shah and M/s. Mobonair Wireless Pvt. Ltd.: The petitioners sought a direction for respondent No.4 to register an FIR and take necessary action against Vishal Shah and M/s. Mobonair Wireless Pvt. Ltd. for allegedly creating forged documents. The court stated that if the police did not register the FIR based on the petitioners' complaint, they had an effective alternate remedy under Section 154(3) Cr.PC by giving a complaint in writing to the Superintendent of Police. If their grievance persisted, they could approach the Magistrate under Section 156(3) Cr.P.C. The court concluded that it was not inclined to grant any relief to the petitioners in this regard and dismissed the writ petition. Conclusion: The court dismissed the writ petition, upholding the legality and constitutionality of Sections 11C(3), 11C(5), 11C(6), and 11C(7) of the SEBI Act. The court also found the summons for the physical appearance of all Directors to be valid and necessary for the investigation. The petitioners were advised to pursue alternate remedies under the Criminal Procedure Code for their grievances regarding the registration of an FIR. No costs were imposed, and all pending applications were disposed of accordingly.
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