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2025 (4) TMI 460 - SC - SEBIOffence under SEBI - misleading advertisements issued by VCL with regard to buyback of its shares issue of bonus shares and preferential issue of shares within 30 days - SEBI s actions in reopening the case and issuing fresh orders after a final order had already been passed - HELD THAT - It is not open to SEBI to claim that it could pass multiple final orders on the same cause of action. Having undertaken the exercise pursuant to its show-cause notices issued in 2012 SEBI passed the order dated 31.07.2014 in exercise of power under Section 11B of the Act of 1992 with certain directions which attained finality and were given full effect to. That being so SEBI could not have reopened the entire exercise without just cause so as to pass a fresh order u/s 11B once again 4 years later. We may also note the unconscionable delay on the part of SEBI. Though the WTM of SEBI passed the order on 01.04.2016 requiring an examination afresh and initiation of disgorgement proceedings it was only on 19.01.2018 that SEBI got around to issuing a show-cause notice proposing disgorgement and then passed an order seven months later. This laidback and indolent approach on the part of SEBI in dealing with the matter needs mention as it does not augur well for a statutory body enjoined with the duty of protecting investors and regulating the securities market which by its very nature is volatile to drag its feet and indulge in unwarranted and unjustified delays. Viewed thus we are of the opinion that the entire exercise undertaken by SEBI after the passing of the final order dated 31.07.2014 resulting in the disgorgement order dated 28.09.2018 was unsustainable in law. Tribunal s authority to direct SEBI to compensate investors who suffered losses due to misleading advertisements - As the compensation claim of Ram Kishori Gupta and Harishchandra Gupta against SEBI stood decided by the Tribunal s order dated 30.04.2013 which also attained finality it was not open to them to reopen the same and seek to pin such liability upon SEBI once again. The directions in that regard by the WTMs of SEBI in the orders dated 16.12.2014 and 01.04.2016 culminating in the direction for restitution by the Tribunal in its judgment dated 02.08.2019 in Appeal No. 44 of 2019 cannot be sustained. It was not for the Tribunal to interpret its earlier order dated 30.04.2013 and give it a different colour contrary to its plain meaning. Finally it has been contented before us by SEBI that as only 4 entities including VCL out of 22 entities filed appeals against the disgorgement order dated 28.09.2018 the said order cannot be invalidated against those who had not chosen to file any appeal. We are informed that some of the individuals concerned have expired while most of the corporate entities have become defunct. In any event as the order suffers from an inherent lack of jurisdiction being barred by the principle of res judicata/ constructive res judicata this argument cannot stand. However given the fact that VCL and the other entities who were the appellants before the Tribunal were held to have indulged in fraudulent acts and transactions and were not innocent or guileless by any stretch of imagination the direction of the Tribunal practically rewarding them with costs of Rs.2, 00, 000/- each was entirely unjustified on facts.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues addressed in the judgment include:
2. ISSUE-WISE DETAILED ANALYSIS Disgorgement Order and Res Judicata: The legal framework involves Section 11B of the Securities and Exchange Board of India Act, 1992, which empowers SEBI to issue directions in the interest of investors and the securities market. The principle of res judicata, as per Section 11 of the Code of Civil Procedure, 1908, prevents re-litigation of the same issues once they have been finally decided. The Court found that SEBI's order dated 28.09.2018, which imposed disgorgement, was barred by res judicata. The Tribunal had previously issued a final order on 31.07.2014 based on the same cause of action and show-cause notices. The Court emphasized that once a final decision is reached, it cannot be reopened without just cause. Reopening of Case and Fresh Orders: SEBI's actions in reopening the case and issuing fresh orders were scrutinized. The Court noted that SEBI had already exercised its powers under Sections 11 and 11B in the order dated 31.07.2014, and that order had attained finality. The subsequent order dated 28.09.2018, imposing additional penalties, was deemed unsustainable as it effectively reversed the finality of the earlier order. Compensation to Investors: The Tribunal had directed SEBI to compensate investors, specifically Ram Kishori Gupta and Harishchandra Gupta, based on its interpretation of an earlier order. However, the Court held that the Tribunal's direction was contrary to its own previous order dated 30.04.2013, which negated the investors' claim for compensation from SEBI. The Court emphasized that SEBI's role does not include compensating investors for losses incurred in the securities market. Applicability of Res Judicata to SEBI Proceedings: The Court affirmed that the principle of res judicata applies to SEBI proceedings. It highlighted that finality in judicial determinations is crucial and that SEBI cannot issue multiple final orders on the same cause of action. The Court referenced precedents that support the application of res judicata to administrative proceedings. Award of Costs to VCL and Other Entities: The Tribunal's award of costs to VCL and other entities was examined. The Court found this award unjustified, given the entities' involvement in fraudulent activities. The direction to award costs was set aside, as it was inconsistent with the facts of the case. 3. SIGNIFICANT HOLDINGS The Court held that SEBI's disgorgement order dated 28.09.2018 was invalid due to the principle of res judicata. It emphasized that SEBI's reopening of the case and issuance of fresh orders was inappropriate, as the earlier order had attained finality. The Court also clarified that SEBI is not responsible for compensating investors for market losses and that the principle of res judicata applies to SEBI proceedings. The Tribunal's award of costs to VCL and other entities was deemed unjustified and set aside. The Court concluded by allowing SEBI's appeal against the Tribunal's judgment directing compensation to investors and dismissed the investors' appeal for additional benefits. It upheld the Tribunal's decision to set aside the disgorgement order but reversed the award of costs to the entities involved.
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