2024 (12) TMI 295 - HC - SEBI

Petitioner deprived of the arbitration remedy - challenge to Clause 7 of SEBI Circular SEBI/HO/MIRSD/DPIEA/CIRP/2020/2015 on the grounds that it is arbitrary and unconstitutional - the impugned clause provides that once a member is disabled or show cause is issued for declaring such member as a defaulter to a Trading Member (TM)/Clearing Member (CM) (whichever is earlier), no further Investor Grievance Redressal Committee ( IGRC )/arbitration meetings shall be conducted HELD THAT - We are satisfied that the petitioner is abusing our extraordinary and discretionary jurisdiction to buy time, having solemnly declared that it has no means to pay. The Petitioner made but unconditionally withdrew his request for arbitration. Therefore, the Petitioner, at least prima facie, cannot now urge that it wishes to proceed with arbitration. However, on account of Clause 7, which is now challenged in this Petition, it cannot do so. Petitioner claims to have no funds to secure the IGRC s directions. Petitioner has openly flouted the discipline imposed by the SEBI circular dated 26 September 2013. We regret to say that the entire objective appears to be to somehow keep the pot boiling and frustrate the claimants attempts to secure any amounts based on the IGRC order. Surprisingly, the petitioner has not even bothered to implead the claimant, Blue Sea International, as a Respondent in this Petition. In somewhat similar circumstances, this Court had declined to exercise its extraordinary and discretionary jurisdiction favouring the Petitioner in Dealmoney Securities Pvt Ltd Vs National Stock Exchange of India 2019 (2) TMI 2121 - BOMBAY HIGH COURT after referring to the SEBI s circular dated 26 September 2013 to streamline and make the investor grievance mechanism more effective. The record shows that several constituents have filed complaints against the Petitioner for large amounts. Now, by order dated 26 November 2024, the Petitioner has already been declared the defaulter. All these circumstances suggest that the Petitioner only wants to depart from the discipline imposed by SEBI s circulars or the NSE s by-laws for reasons which, at least prima facie, do not appear to be valid or even bona fide. Although Respondents did try to make some submissions about how the impugned clause is not unconstitutional or unreasonable, at least in this Petition and at the behest of the Petitioner, we do not wish to address or discuss this issue. The bald contention about arbitrariness is far from substantiated. Any decision on this issue at the behest of such a petitioner might foreclose serious challenge at the behest of some genuine relator. Petitioner before us is also a member of the National Stock Exchange. The methodology prescribed in the circular of 2013 has been operative for almost 11 to 12 years. The Petitioner is very aware of this methodology and, therefore, declared his intention to resort to arbitration within seven days of the ICRC s order. However, soon after that, the Petitioner withdrew this intimation by explicitly stating that the Petitioner does not wish to pursue arbitration. After a show cause notice was issued on 5 January 2022, the Petitioner made the volte-face and wrote to the NSE that it wanted to pursue the arbitration. Admittedly, this intimation exceeded the timelines prescribed in the SEBI circular. Fortunately, the petitioner has not questioned the SEBI s circular dated 26 September 2013. The bald contention about arbitrariness is far from substantiated. Any decision on this issue at the behest of such a petitioner might foreclose serious challenge at the behest of some genuine relator. We decline to entertain this Petition and dismiss it with costs of Rs 25,000/-, which the Petitioner must pay within four weeks of today.

Summary

Issues:
Challenge to SEBI Circular Clause 7 on grounds of arbitrariness and unconstitutionality.

Analysis:
The Petitioner challenges Clause 7 of SEBI Circular No. SEBI/HO/MIRSD/DPIEA/CIRP/2020/2015, dated 1 July 2020, arguing it is arbitrary and unconstitutional. The Petitioner contends that the clause restricts arbitration remedy once a member is disabled or a show cause is issued for declaring the member as a defaulter. The Petitioner claims deprivation of arbitration remedy violates Article 14 of the Constitution of India. The Petitioner's argument is based on the fact that the show cause notice may be discharged after response, rendering the restriction unreasonable and arbitrary.

In response to the IGRC order directing the Petitioner to pay a significant amount to Blue Sea International, the Petitioner initially indicated intent for arbitration but later withdrew this intention. Subsequently, a show-cause notice was issued, leading to the Petitioner expressing a desire for arbitration after the prescribed timeline. The stock exchange declared the Petitioner a defaulter following the show cause notice.

The Court noted the Petitioner's inability to secure the IGRC's directions financially and accused the Petitioner of abusing the legal process to delay payment. The Court highlighted the Petitioner's failure to comply with SEBI circulars and the lack of impleading the claimant in the proceedings, indicating a lack of bona fide intentions.

Referring to a similar case, the Court emphasized the importance of adhering to SEBI circulars to ensure an effective investor grievance mechanism. The Court declined to entertain the Petition, citing the Petitioner's contradictory actions, failure to comply with regulations, and lack of genuine intentions. The Petitioner was ordered to pay costs within a specified period, with the costs directed to Tata Memorial Hospital.

In conclusion, the Court dismissed the Petition, emphasizing the need for adherence to regulatory frameworks and genuine intentions in legal proceedings. The Court's decision was based on the Petitioner's failure to comply with SEBI circulars, contradictory actions, and lack of financial means to fulfill obligations. The Court imposed costs on the Petitioner, directing payment to Tata Memorial Hospital.