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TMI Blog2022 (7) TMI 774X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 - SUPREME COURT] has held that Section 11-B is procedural in nature that prima facie applies to all actions, pending as well as future. When a provision that provides for imposition of directions which is in the nature of punishment itself is held to be retrospective, Section 11-C can very well be held to be retrospective in operation A cursory perusal of the above observations clearly tells us that Section 11-C is retrospective in nature only. Whether Section 11-C(3) covers past transactions also, a clear reading of Section 11-C(1) shows that there are two sub-clauses, namely, Section 11-C(1)(a) and Section 11-C(1)(b), while the former uses the expression are being meaning its application to the present transactions, the latter uses the expression has violated which clearly means the past transactions as well - As these two clauses are to be read disjunctively and not conjunctively, because even for past transactions the Section 11-C(1)(b) applies. Moreover, the writ petitions are not even maintainable, for the simple reason that when disputed questions have arisen as to whether the appellants/writ petitioners are individual investors or not, it is for them to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xchange Board of India (for short, the Board ) was established in the year 1988 by a Government resolution to promote orderly and healthy growth of the securities market. For the reason that the capital market in India witnessed a tremendous growth with increasing participation of the public, the Government of India, to sustain the investors confidence, decided to vest the Board with statutory powers. Therefore, the President of India promulgated the Securities Exchange Board of India Ordinance, 1992, since the Parliament was not in session. Later on, the Securities Exchange Board of India Act, 1992 (for short, the Act) was enacted replacing the said Ordinance. The Act has been amended from time to time vesting certain powers with the Board and Section 11 of the Act defines the power of the Board. Additional powers were also vested with the Board by the amendment in the year 2002 by inserting Section 11-C through Act 59 of 2002 with effect from 29.10.2002 vesting investigative powers on the Board giving a prospective effect subject to the conditions enumerated under Section 11-C(1)(a) and (b) of the Act. 4. Mr. S.R. Rajagopal, learned counsel appearing for the appellants subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s causing harassment to the appellants. On this score, it was attacked before the learned single Judge that the impugned communications and the accompanying summons issued under Section 11-C(3), (5), (6) of the Act are unsustainable on law and on facts, hence, they are liable to be set aside. 5. It was also pleaded that the impugned communications and summons were against the principles of natural justice and they are in violation of the fundamental rights as guaranteed by the Constitution of India, inasmuch as Section 11-C(1)(a) empowers the respondent only insofar as the transactions that are being dealt and not in respect of past transactions. When Section 11-C(1)(a) requires the respondent to satisfy themselves that the transactions are dealt in a manner detrimental to the investors and the securities market, a reading of the impugned communication does not disclose that the respondent has come to the conclusion that the transactions dealt with by the appellants are detrimental to the investors and securities market. When Section 11-C has been introduced by Act 59 of 2002 that came into force from 29.10.2002, the respondent cannot seek to investigate the transactions pertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e listed out exhaustively under Section 12 of the Act as stock broker, sub broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with securities market, for the reason that the appellants are not falling within the definition of any intermediary or any person associated with the securities market , Section 11-C cannot be invoked against them. Again referring to paragraph-8 of the counter affidavit filed by the respondent in the writ petitions, the learned counsel appearing for the appellants argued that the respondent has admitted that the appellants are investors. When the appellants are individual investors, they do not fall within any of the categories of persons mentioned in Section 11-C of the Act. This has been completely overlooked by the learned single Judge. Again referring to Section 11-C, it was contended that Section 11-C also cannot be supplemented to Section 11(1)(f) as contended by the learned Additional Solicitor General appearing for the respondent. If there was an allegation of insider trading, then the 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ashed. Moreover, paragraphs 9 and 11 of the counter affidavit also failed to show that the subjective satisfaction has been arrived at by the respondent before issuance of the summons. 9. Coming to the maintainability of the writ petitions, Mr. Rajagopal also argued that when the impugned summons are contrary to the provisions of the Act and have been issued without jurisdiction, the writ petitions under Article 226 of the Constitution of India challenging the same are legally maintainable, therefore, the question of applying the rule of exhaustion of alternative remedy will not arise. In support of his submissions, he referred to the following judgments: (i) Civil Appeal No. 3106 of 2008 (Deputy Commissioner, Central Excise another v. Sushil and Company; (ii) 1983 (13) E.L.T. 1342 (SC) East India Commercial Co. Ltd., Calcutta v. Collector of Customs, Calcutta; (iii) W.A. No. 493 of 2021 dated 18.02.2021 Mahindra and Mahindra v. The Joint Commissioner (CT) Appeals; (iv) W.P.(MD) No. 4252 of 2021 M/s. T.V. Sundaram Iyengar Sons v. The Commissioner of CGST Central Excise. 10. Arguing further, Mr. Rajagopal submitted that the case of Securities and Exch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that Section 11-C(1)(a) and Section 11-C(1)(b) deal with separate subject matters and therefore the word 'or' employed between these two clauses may be read as 'or' only and not 'and', as wrongly submitted by the appellants, because Section 11-C(1)(a) deals with the transactions which are in progress, whereas Section 11-C(1)(b) deals with the past transactions as well, hence, clauses (a) and (b) do not deal with the same subject matter. When clause (a) deals with the transactions of current nature, clause (b) covers the past transactions, hence, when these two clauses deal with separate situations and they are separated/disjunctive, the same cannot be read by substituting the word 'and', as wrongly contended by the appellants. 13. Coming to the next submission that the appellants admittedly are investors and shareholders, it was argued that they fall within the realm of the expression persons associated with the securities market for the purpose of investigation under Section 11-C of the Act. Hence, when the show cause notices mention the role and complicity of the appellants in the said transactions, it is clear that the appellants are i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rules made thereunder. In exercise of the power under Section 30, the Board issued two regulations known as the Securities Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 and the Securities Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. Under the 1995 Regulations, the Board was vested with the power to order for investigation available in Chapter III. Therefore, it could be seen clearly that the respondent Board had power to investigate into the affairs of any person buying, selling or otherwise dealing with securities. When such investigating power can be entrusted by the Board to any officer nominated by the Board, in order to issue any direction under Section 11 of the Act, the Board used to either investigate directly or through any officer in respect of the affairs of any person or organization involved in the business of buying, selling or dealing in securities. However, the said 1995 Regulations were superseded by the 2003 Regulations. As per the 2003 Regulations also, the Board has been vested with the power to or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestigation can be entrusted to an investigating authority and thereafter if the investigating authority submits any report, based on the same, the Board can pass any order as it deems fit, as per Section 11-B of the Act. As the learned counsel appearing on either side had referred to Section 11-C, for the sake of convenience, Section 11-C of the Act is reproduced hereunder:- 11C. Investigation.- (1) Where the Board has reasonable ground to believe that- (a) the transactions in securities are being dealt with in a manner detrimental to the investors or the securities market; or (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. (2) Without prejudice to the provisions of sections 235 to 241 of the Companies Act, 1956 (1 of 1956), it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) to produce to the Investigating Authority or any person authorised by him 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- 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 every day after the first during which the failure or refusal continues. (7) Notes of any examination under sub-section (5) shall be taken down in writing and shall be read over to, or by, and signed by, the person examined, and may thereafter be used in evidence against him. (8) Where in the course of investigation, the Investigating Authority has reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974), relating to searches or seizures made under that Code. 18. A perusal of Section 11-C(1)(a) shows that where the Board has reasonable ground to believe that the transactions in securities are being dealt with in a manner detrimental to the investors of the securities market, the Board can order for investigation. Similarly, Section 11-C(1)(b) needs to be looked into carefully as the language used in Section 11-C(1)(b) is not similar to the language used in Section 11-C(1)(a), since it deals with the past transactions. The learned single Judge, after appreciating the language used in both the provisions, has rightly held that the Board has got power to order for investigation with regard to the past transactions as well by the investigating authority as it is relatable to the investigation against any intermediary or any person and both the provisions are to be read disjunctively and not conjunctively, more particularly, that was the reason for the Parliament to use the word 'or' in between these two provisions. 19. The Gujarat High Court in Karnavati Fincorp v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dinance was subsequently replaced by the Securities and Exchange Board of India (Amendment) Act, 2002 with effect from 29.10.2002. One of the provisions inserted by the amendment Act was the insertion of Section 11-C which provided for investigation. Section 11-C(1) is also reproduced below for perusal. 11C. Investigation.- (1) Where the Board has reasonable ground to believe that- (a) the transactions in securities are being dealt with in a manner detrimental to the investors or the securities market; or (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. 21. A careful reading of the above provision shows that the investigation can be conducted after the Board has reasonable ground to believe that any person associated with the secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he twin purposes to be achieved by the said Act. Therefore, by the 1995 Amendment by way of Section 11-B the Board has been empowered to carry out the purposes of the said Act. 40. Provisions of Section 11-B being procedural in nature can be applied retrospectively. The Appellate Tribunal made a manifest error by not appreciating that Section 11-B is procedural in nature. It is a time-honoured principle if the law affects 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, wherein A.N. Ray, C.J., laid down those principles.] 41. Maxwell in his Interpretation of Statutes also indicated that no one has a vested right in any course of procedure. A person's right of either prosecution or defence is conditioned by the manner prescribed for the time being by the law and if by the Act of Parliament, the mode of proceeding is altered, then no one has any other right than to proceed under the alternate mode. (Maxwell on Interpretation of Statutes, 11th Edn., p.216). These principles, enunciated by Maxwell, have been quoted with approval by the Supreme Court in it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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