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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 ..... ontrary, if the provision is substantive in nature, creating either rights or liabilities, unless a different intention is shown in the Act itself, the said provision shall, undoubtedly, be prospective in nature. Undoubtedly, as guaranteed under article 20(1) of the Constitution of India, no person shall be convicted for any 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 instant cases, if the petitioners fail to comply with the orders made under section 11C(1), for the said non-compliance or disobedience, they are liable to be punished as provided in section 11C(6). 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). It is for non-compliance of the orders made under section 11C(1), that they are liable to be punished as the non-compliance which constitutes offence takes place after the introduction of section 11C(1). Thus, section 11C(6) is not attempted to be applied retrospectively in the instant cases as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be dismissed. [Para 28] - W.P. NOS. 28703, 28704, 29375 TO 29380 OF 2004 W.P.M.P. NOS. 35660 TO 35665 OF 2004 & 208 OF 2005 - - - Dated:- 22-3-2012 - S. NAGAMUTHU, J. R. Yashod Vardhan, Vijaya Narayanan and S.R. Rajagopal for the Petitioner. R. Muthukumaraswamy and Shivakumar for the Respondent. JUDGMENT 1. In all these writ petitions, the orders passed by the respective investigating authority, under section 11C of the Securities and Exchange Board of India Act, 1992, directing the petitioners herein to appear before the investigating authority for investigation, are under challenge. 2. The respondent is the "Securities and Exchange Board of India" constituted under the "Securities and Exchange Board of India Act, 1992" (hereinafter referred to as "the SEBI Act"). According to the impugned orders in W.P. Nos. 28703 and 28704 of 2004, the petitioners were doing the business of buying, selling or dealing in shares of NEPC group of companies during the period between June 3, 1996 and October 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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the Board. Section 11(1) of the SEBI Act which falls in Chapter IV reads as follows : "11. Functions of Board.-(1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. (2) Without prejudice to the generality of the foregoing provisions, the measures referred to therein may provide for- (a) regulating the business in stock exchanges and any other securities markets;... (i) calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, mutual funds, other persons associated with the securities market, intermediaries and self regulatory organisations in the securities market ;... (m) performing such other functions as may be prescribed." 6. Chapter V of the SEBI Act deals with the registration certificate. Chapter VI deals with the finance, accounts and audit. Chapter VII deals with the 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. Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies Act, 1956 (1 of 1956), it shall be the duty of every manager, managing director, officer and other employee of the company and every intermediary referred to in section 12 or every person associated with the securities market to preserve and to produce to the Investigating Authority or any person authorised by it in this behalf, all the books, registers, other documents and record of, or relating to, the company or, as the case may be, of or relating to, the intermediary or such person, which are in their custody or power .. . (6) If any person fails without reasonable cause or refuses- (a) to produce to the Investigating Authority or any person authorised by it in this behalf any book, register, other document and record which is his duty under sub-section (2) or sub-section (3) to produce ; or (b) to furnish any information which is his duty under sub-section (3) to furnish ; or (c) to appear before the Investigating Authority personally when required to do so under sub-section (5) or to answer any question which 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-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entrusted by the Board to any officer nominated by the Board. Thus, in order to issue any direction under section 11 of the SEBI Act and for other purposes, the Board used to either investigate directly or through any officer in respect of the affairs of any person or organisation involving in the business of buying, selling or dealing in securities. The said Regulations 1995 was superseded by Regulations, 2003 as referred to above. As per Regulations, 2003 also, under Chapter III, the Board has been vested with power to order investigation and such investigation can be entrusted to an investigating authority. Based on the report of the investigating authority, the Board can pass any order as it deems fit as provided in section 11B of the Act. 11. As we have already seen, prior to October 29, 2002, the SEBI Act did not contain a specific provision providing for an agency to investigate. Admittedly, under section 11(2)(i), an inquiry could be conducted by the Board. However, by means of the Regulations 1995, the Board was vested with the power to nominate any officer to investigate into the affairs. The said Regulations, 1995 has not been challenged. The same is also not inconsis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary implication made to have retrospective effect, a statute concerned mainly with matters of procedure or evidence or which is declaratory in nature has to be constructed as retrospective unless there is a clear indication that such was not the intention of the Legislature." 14. Learned senior counsel Mr. R. Yashod Vardhan would submit that section 11C is substantive in nature as, according to him, it creates civil, criminal and penal consequences and, therefore, it is prospective. Learned senior counsel would further submit that in pursuance of the impugned orders, if the petitioners fail to produce the documents or to participate in the inquiry, they could be punished with imprisonment or with fine or with both. Thus, according to learned senior counsel, section 11C(6) creates criminal liability and, therefore, section 11C(1) is a substantive provision. But, this argument does not persuade me at all for more than one reason. Undoubtedly, as guaranteed under article 20(1) of the Constitution of India, no person shall be convicted for any 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 mig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal, consequent upon the investigation under section 11C(1) of the SEBI Act. Admittedly, the investigation itself does not directly result in either penalty or punishment or any other civil consequences. After the investigation, the investigating authority has to submit a report to the Board under section 11C(1) of the SEBI Act. On receipt of such report, the Board will consider the same and after affording sufficient opportunity to the persons concerned, the Board will have three options before it to do. The first option is to go in for prosecution under section 24 of the SEBI Act ; the second option is to impose a penalty under section 15A of the SEBI Act ; and the third option is to issue any suitable direction under section 11B of the SEBI Act. Penalty under Chapter VI-A or any conviction under section 24 of the SEBI Act will be by means of appropriate adjudication by the competent authority/court after affording sufficient opportunity to the persons concerned. Thus, investigation is only a means to collect evidences by the investigating authority by following the prescribed procedure and such investigation by itself does not result in penal or civil consequences. Therefore, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been prohibited from buying, selling or dealing in securities for a period of five years." 18. Finally, in paragraph 40 of the aforesaid judgment, the hon'ble Supreme Court has held as follows (page 12 of 155 Comp Cas) : "Provisions of section 11B being procedural in nature can be applied, retrospectively. The Appellate Tribunal made a manifest error by not appreciating that section 11B is procedural in nature. It is a time honoured principle if the law affects the matters of procedure, then prima facie it applies to all actions, pending as well as future (see K. Eapen Chako v. Provident Investment Co. P. Ltd., AIR 1976 SC 2610 ; [1977] 1 SCC 593, wherein Chief Justice A. N. Ray laid down those principles." 19. In view of the above law laid down by the hon'ble Supreme Court holding that section 11B of the SEBI Act under which a prohibitory order is passed itself is only procedural and has got retrospective operation, there can be no difficulty at all in holding that section 11C(1), which deals only with investigation, is procedural and, therefore, it is retrospective in operation. 20. As I have already pointed out, even prior to the introduction of section 11C(1) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . . . (b) any intermediary or any person associated with the securities market has violated any of the provisions of this Act or the rules or the regulations made or directions issued by the Board thereunder, it may, at any time by order in writing, direct any person (hereafter in this section referred to as the Investigating Authority) specified in the order to investigate the affairs of such intermediary or persons associated with the securities market and to report thereon to the Board." 23. Here, the language used in section 11C(1)(b) is not similar to the language used in section 11C(1)(a). In section 11C(1)(a), the language used is "transaction in securities are being dealt", whereas the language in section 11C(1)(b) is "has violated any of the provisions of the Act or Rules or Regulations, etc.,". This clearly shows that section 11C(1)(b) covers the past transactions. In other words, section 11C(1)(a) deals with the transactions, which are in progress, whereas, section 11C(1)(b) deals with the past trans actions as well. 24. But, Mr. R. Yashod Vardhan would submit that the word "or" employed between section 11C(1)(a) and section 11C(1)(b) should not be understood as "a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n mentioned. Learned senior counsel would submit that formation of belief founded on such grounds alone gives jurisdiction for issuance of orders under section 11C(1) for investigation. Since, in the instant cases, the impugned orders do not reflect the grounds, according to learned senior counsel, the impugned orders are wholly without jurisdiction. In support of his contention, learned senior counsel relies on the judgment of the hon'ble Supreme Court in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312. That is a case under the Income-tax Act, 1961. Under section 147 of the Income-tax Act, if an Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of sections 148 and 153 of the Income-tax Act assess or reassess such income and also any other income chargeable to tax, which has escaped assessment, etc. While considering the expression "reasons to believe" the hon'ble Supreme Court has held, that the reasons recorded by the Assessing Authority alone gives him jurisdiction to assess or reassess. If reasons have not been stated, then the notice issued by the authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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