2015 (5) TMI 439 - HC - Companies Law

Petition by an old time Director of a non-banking financial company which has failed in repayments - SEBI order prevented him from operating in any of the securities which he owns until further orders - Only Interim order passed by SEBI - Writ Jurisdiction - Territorial jurisdiction - An alternative remedy of appeal available - Held that - In my view, the attempt by the petitioner approaching this Court is not appropriate at all for the following reasons. The order passed by SEBI is not a final one and it is interim in nature to consider the fact that the company which is a non banking financial company had made some defaults and the Directors were accountable for such default. In furtherance of the final order that is required to be passed to provide for appropriate protection to persons who have lost their monies, it has passed an order meant to secure rectitude in financial dealings by Directors of companies and making them accountable for their alleged lapses. It can be a harsh situation for person who is retired from a company from the directorship to be held responsible for defaults but if there is any order that is passed by SEBI at Bombay which is causing inconvenience and which is not even a final order but merely an interim direction by SEBI, it is amenable for review by SEBI itself and does not require to be monitored through proceedings of this Court. Even as regards the forum conveniens, it will be wrong to argue that the petitioner's own residence will give him a cause of action, as explained above. The Full Bench was dealing with the case of an order which was passed by Appellate Tribunal at Chennai and the Court was finding that the jurisdiction was available to it and even either a case could have also been filed at Bangalore. Such situation does not arise here. No part of the cause of action arises here except the fact that the petitioner is residing here. Even the decision of the Supreme Court in M/s Kusum Ingots & Alloys Ltd.'s case 2004 (4) TMI 342 - SUPREME COURT OF INDIA was in a situation of what was appropriate and what was the forum conveniens. Convenience ought not to be understood as convenience of the parties at all times and that cannot be again spoken from the context of personal tragedies obtaining to the petitioner. He must challenge the order which is against him in a Court which is appropriate and in a forum which is competent. In this case, since it is not a final order and the order was not really adjudicated on rights of parties, I would think that there is no scope for intervention through writ petition. Therefore, I do not propose to make any intervention. The petitioner is at liberty to approach SEBI itself for modification of the order. There is yet another reason why it shall be wholly inexigent to make intervention at this stage. If the impugned order were to be taken as a final adjudication qua petitioner and hence cannot be modified by SEBI itself then every such order passed by SEBI is amenable for a challenge through an appeal to Securities Appellate Tribunal under Section 15 T of SEBI Act. The writ petition is not even competent or efficacious, since there is an alternative remedy of appeal provided under the Act. - Decided against the appellant.

Summary

Issues:
1. Challenge to SEBI order preventing operation in securities.
2. Jurisdiction of the Court to interfere.
3. Forum conveniens in relation to cause of action.
4. Applicability of alternative remedy of appeal to Securities Appellate Tribunal.
5. Violation of natural justice in decision-making process.

Analysis:
1. The petitioner sought to challenge an order by SEBI preventing operation in securities due to defaults by a nonbanking financial company where the petitioner was a former director. The petitioner argued that the order would severely impact him financially, especially considering personal circumstances such as age and a handicapped daughter. The Court noted that the SEBI order was interim and aimed at holding directors accountable for financial defaults, indicating the need for final orders to protect affected parties. The Court advised the petitioner to seek review by SEBI instead of Court intervention.

2. The issue of jurisdiction arose concerning whether the Court could interfere in the matter. The Senior Counsel cited a Full Bench ruling from the Madras High Court regarding the tenability of challenging orders based on where the cause of action arises. The Court emphasized that the petitioner's residence alone does not establish cause of action, and the appropriate forum for challenging SEBI orders should be where the order is issued, not where the affected party resides.

3. The concept of forum conveniens was discussed, highlighting that convenience should not solely benefit the parties but should consider where the cause of action arises. The Court referenced a Supreme Court judgment and a Gujarat High Court decision to emphasize that the forum for legal proceedings should be based on where the alleged lapses occurred, not the convenience of the parties involved.

4. The Court addressed the availability of an alternative remedy through an appeal to the Securities Appellate Tribunal under the SEBI Act. It was noted that challenging SEBI orders through a writ petition was not the appropriate course of action when an alternative appeal process was provided under the Act.

5. The Senior Counsel argued that the decision-making process by SEBI violated natural justice by not providing a pre-decisional hearing to the petitioner. However, the Court referred to a Division Bench decision stating that pre-decisional natural justice is not always required for interim orders, and post-decisional hearings can suffice to fulfill the principles of natural justice. The Court dismissed the writ petition, advising the petitioner to approach SEBI for modification of the order and highlighting that the observations made by the Court would not affect the petitioner's right to seek remedy through other forums or courts.