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TMI Blog2013 (4) TMI 539X X X X Extracts X X X X X X X X Extracts X X X X ..... 31, 1996. By means of the impugned orders, the petitioners were required to furnish details/information relating to the transactions, which were done during the said period, for the purpose of completing the investigation under section 11C of the SEBI Act. In W. P. Nos. 29375, 29376, 29377, 29378, 29379 and 29380 of 2004, according to the respondent, the petitioners were involved in the business of buying, selling or dealing in shares of M/s. Sai Televisions Ltd., during the period between April, 2001 to June, 2002. The petitioners, by means of the impugned orders, were directed to furnish the details/information for such transactions held by the petitioners to enable the investigating authority to investigate into the allegations. The petitioners, in all these writ petitions are aggrieved by the said orders. That is how, they are before this court. Since, common issues are involved, these writ petitions were heard together and they are disposed of by this common order. 3. Before going into the grounds raised and the arguments advanced at length on either side, let us have a bird's eye view of the SEBI Act. 4. In the year 1988, by means of a resolution, the Central Government est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... miscellaneous matters. Section 24 of the SEBI Act deals with offences. The said provision, prior to the Amendment Act 59 of 2002, stood as follows : "24. Offences.-(1) Without prejudice to any award of penalty by the adjudicating officer under this Act, if any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations made thereunder, he shall be punishable with imprisonment for a term which may extend to one year, or with fine, or with both. (2) If any person fails to pay the penalty imposed by the adjudicating officer or fails to comply with any of his directions or orders, he shall be punishable with imprisonment for a term which shall not be less than one month, but which may extend to three years or with fine, which shall not be less than two thousand rupees but which may extend to tend thousand rupees or with both." (emphasis supplied) 7. Subsequently, the SEBI Act had undergone drastic amendments by four Amending Acts, viz., Amendment Act 9 of 1995, Amendment Act, 31 of 1999, Amendment Act 32 of 1999 and Amendment Act 59 of 2002. By means of Amendment Act 9 of 1995, sections 11A and 11B were introdu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is put to him by the Investigating Authority in pursuance of that sub-section ; or (d) to sign the notes of any examination referred to in sub-section (7), he shall be punishable with imprisonment for a term which may extend to one year, or with fine, which may extend to one crore rupees, or with both, and also with a further fine which may extend to five lakh rupees for everyday after the first during which the failure or refusal continues." 8. By means of Amendment Act 59 of 2002, section 24 of the SEBI Act was also amended. Under sub-section (1) of section 24, the punishment of one year or fine or with both prescribed earlier was substituted by punishment of ten years or with fine which may extend to twenty-five crore rupees or with both. Similarly, section 24(2) of the SEBI Act was amended and instead of punishment of three years or with fine, which shall not be less than two thousand rupees but which may extend to ten thousand rupees or with both, it was amended as ten years or with fine which may extend to twenty-five crore rupees or with both. 9. As we have noticed, in order to ensure orderly and healthy growth of the securities market and the protection of the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer to nominate any officer to investigate into the affairs. The said Regulations, 1995 has not been challenged. The same is also not inconsistent either with the Act or Rules framed thereunder. By means of Amendment Act 59 of 2002, a specific provision was made by way of section 11C in the SEBI Act itself providing for an agency for investigating into the affairs and the procedure to be followed, etc. After the introduction of section 11C, the Regulations, 2003 was put in place which will have still force inasmuch as the same is not inconsistent with section 11C. Section 11C of the SEBI Act and the Regulations, 2003 go hand-in-hand. So, even after the introduction of section 11C, the Board can very well nominate an officer to investigate and submit a report. 12. In the instant cases, one of the main grounds of attack is that the orders impugned in the writ petitions which have been issued under section 11C of the SEBI Act are not sustainable as according to the petitioners, the said provision is only prospective in nature and the same is not applicable to the petitioners since the transactions, which are said to have been done by the petitioners, were prior to the Amendment Act 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny offence except for violation of a law in force at the time of commission of the act, nor be subjected to penalty greater than which might have been inflicted under the law in force at the time of commission of the offence. In the cases on hand, if the petitioners fail to comply with the orders made under section 11C(1) of the SEBI Act, for the said non-compliance or disobedience, they are liable to be punished as provided in section 11C(6) of the Act. Here, it needs to be understood that such punishment is not for any violation or disobedience of any provision, then in force, i.e., prior to the introduction of section 11C(6) of the SEBI Act. It is for non-compliance of the orders made under section 11C(1) of the SEBI Act, that they are liable to be punished as the non-compliance which constitutes offence takes place after the introduction of section 11C(1) of the SEBI Act. Thus, section 11C(6) of the SEBI Act is not attempted to be applied retrospectively in the instant cases as it is projected by learned senior counsel for the petitioners. I hold that section 11C(6) of the SEBI Act, which creates criminal liability, is substantive in nature and thus, it is prospective. 15. Nex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity by following the prescribed procedure and such investigation by itself does not result in penal or civil consequences. Therefore, I hold that the investigation, as provided in section 11C(1), by itself is not substantive in nature. Per contra, it is purely procedural. Therefore, as per the settled law, section 11C(1) of the SEBI Act is retrospective in nature. 17. At this juncture, we may usefully refer to the judgment of the hon'ble Supreme Court in SEBI v. Ajay Agarwal [2010] 155 Comp. Cas. 1/ 98 SCL 424 . In that case, before the hon'ble Supreme Court, an argument was advanced that section 11B of the SEBI Act is substantive in nature and, therefore, it is only prospective in operation. Factually, in the case before the hon'ble Supreme Court, the impugned transactions were during the months of November, 1993 and October, 1993, whereas section 11B was introduced to the statute with effect from January 25, 1995. For the misconduct committed in the year 1993, when the Board applied section 11B of the SEBI Act and issued direction, it was found fault with by the company by contending that section 11B of the SEBI Act, being prospective, cannot be applied. While negativing the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, it is retrospective in operation. 20. As I have already pointed out, even prior to the introduction of section 11C(1) of the SEBI Act, the Board was not helpless to do any investigation. The Board was fully empowered as per Regulations, 1995 to nominate an investigating officer and to get a report from him on a thorough investigation. Such investigation, which was earlier governed solely by the Regulations, 1995, subsequently came to be governed by section 11C of the SEBI Act as well as the Regulations, 1995. Now, the Regulations, 1995 has been repealed by Regulations, 2003. Thus, as of now, any investigation by an authority is governed by section 11C of the SEBI Act as well as Regulations, 2003. Thus, the contention of the petitioners that the orders impugned in these writ petitions, which have been issued under section 11C(1) of the Act, are wholly without jurisdiction deserves only to be rejected. 21. Learned senior counsel Mr. R. Yashod Vardhan would nextly contend that assuming that the SEBI has power to order for investigation, such investigation can be directed only in respect of the transactions in securities, which are being dealt with in a manner detrimental to the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would submit that the word "or" employed between section 11C(1)(a) and section 11C(1)(b) should not be understood as "a disjunction" and it should be read as "and". In other words, according to learned senior counsel, both sections 11C(1)(a) and 11C(1)(b) deal with one and the same subject and so, the same should not be read disjunctively. Thus, learned senior counsel would make an attempt to show that if both the provisions are read together, it could be understood that the said provisions cover only the transactions, which are still in progress and not the past transactions. This argument of learned counsel is also liable to be rejected for the simple reason that sub-section (1)(a) of section 11C and sub-section (1)(b) of section 11C deal with two different kinds of situations. In so far as section 11C(1)(a) is concerned, it deals with transactions in securities, which have got no sanction of law. If the Board has reasonable ground to believe that there are some transactions, which are detrimental to the investors and security market, though the persons involved in the business/transactions are not known, the Board can order under section 11C(1)(a) investigation by the investigat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gives him jurisdiction to assess or reassess. If reasons have not been stated, then the notice issued by the authority is liable to be quashed as without jurisdiction. Regarding this legal position, there can be no controversy. Of course, in the case on hand, in the impugned orders, there is no mention about the grounds upon which the Board believed that there had been violation of the provisions of the SEBI Act, Rules, Regulations or directions by the petitioners warranting investigation. But, it is the settled law that if the records show consideration of such grounds by the authority, it would satisfy the legal requirements. For that purpose, the respondent has produced the copies of records to show the entries prior to the impugned orders. I find from the records that there are lot of materials collected, discussions held indicating application of mind and based on the same only, the impugned orders have been passed. Therefore, this argument is also liable to be rejected. 26. Nextly, learned senior counsel Mr. Vijay Narayanan would contend that the petitioners are not persons involved in buying, selling or dealing in shares of any company. Learned senior counsel would submit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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