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TMI Blog2023 (10) TMI 1173X X X X Extracts X X X X X X X X Extracts X X X X ..... virtue of which Regulation 29 cannot be read as a blanket or a mandatory bar on non supply of documents and information. By no stretch of imagination, can it be said that the petitioners in the present case, who are minority shareholders and in such capacity, being part owners of the company to the extent of their shareholding, are persons who are alien/outsiders to the company (BNL), moreover they are integral to the company, having an inextricable concern and interest in the functioning and management of the company. Thus the word public as used in Regulation 29 can in no manner be made attributable to shareholders of BNL like the petitioners. This apart, if such contention as urged on behalf of the respondents that the petitioners are public and therefore, they are not entitled to receive information by the applicability of Regulation 29, if accepted, the same yardstick and parameters become applicable to respondent Nos. 3 to 9, who are also shareholders of BNL, who are hence not a different class, than that of the petitioners. The petitioners as also respondent Nos. 3 to 9 belong to the same species as shareholders As it cannot be countenanced that some shareholde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted under the Act and the regulations are required to act considering the paramount interest of the investors. For such reasons as well, we do not find as to why the petitioners ought not to be entitled to the documents. We do not find that there is any impediment whatsoever in law or otherwise for the documents, as demanded, to be supplied to the petitioners. We are inclined to grant to the petitioners interim relief in terms of prayer clause (g). - G. S. KULKARNI JITENDRA JAIN, JJ. For the Petitioner in WP/530/2023 : Mr. Navroz Seervai, Senior Advocate with Ms. Aarti Raghavan, Mr. Vikram Raghani, Mr. Pulkit Sukhramani, Ms. Vidhi Jhawar, Mr. Deepank Anand and Mr. Shourya Tanay i/b JSA Advocates Solicitors, For the Petitioner in WP/447/2023 : Mr. Gaurav Joshi, Sr. Adv. a/w Mr. Kunal Katariya and Ms. Garima Mehrotra, For the Respondent No. 1 in WP/530/2023 : Mr. J. J. Bhatt, Sr. Adv. a/w Mr. Mihir Mody and Mr. Arnav Misra i/b K. Ashar Co. For the Respondent No. 1 in WP/447/2023 : Mr. Vishal Kanade with Mr. Mihir Mody and Arnav Misra i/b K. Ashar Co., For the Respondent No. 2 in WP/530/2023 : Mr. Venkatesh Dhond, Sr. Adv. a/w Mr. Amey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investors in BNL. The petitioners contend that BNL is a majority shareholder of a reputed company known as Bennett, Coleman Co. Ltd. (for short BCCL ) in which BNL and respondent Nos. 3, 4, 7 to 9 have approximately 68% shareholding. 4. The case of the petitioners is that there are several reasons for the BNL to undertake such actions and resort to illegalities of suppression to the prejudice of the petitioners of the nature as complained namely of violations of the MPS and violation of the promoter shareholding as per SEBI norms. It is contended that on complaints being made by the petitioners to the SEBI and the SEBI after having undertaken an investigation, a show cause notice was issued inter alia to the BNL, on the SEBI being satisfied of serious irregularities and breach of rules and regulations committed by BNL. According to the petitioners, the same ought to have been taken to the logical conclusion. However, before the show cause notice proceedings could be taken forward against respondent Nos. 2 to 9, respondent No. 2 moved an application for settlement of the show cause notice by invoking the provisions of the Securities and Exchange Board of India (Settlement Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be made out: i. SEBI conducted an investigation for the period between January 01, 2013 and December 31, 2019 i.e., a period spanning more than 6 years, to ascertain whether there had been any misrepresentation of shareholding of promoters as public shareholders and possible non-compliance with minimum public shareholding norms. ii. SEBI prima facie observed the following violations in respect of BNL, Respondent No. 2: a) Regulation 31(1)(b) of the LODR Regulations r/w SEBI Circular dated November 30, 2015 r/w Regulation 2(za) of the ICDR Regulations and Clause 35 of the Listing Agreement in terms of which listed entities are required to submit to the stock exchange(s) a statement showing holding of securities and shareholding pattern separately for each class of securities i.e., Promoter and Promoter Group, Public and Non-Promoter Non-Public shareholding within time period specified; b) Rule 19A(1) of the SCRR r/w Regulation 28 of LODR Regulations r/w Clause 2(II) of SEBI Circular dated December 16, 2010 r/w November 30, 2015 in terms of which every listed company is required to maintain a minimum public shareholding of at least 25% and the manner of achie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttlement application filed by Respondent Nos. 2 to 9 was approved by SEBI and all other documents relevant to the proceedings in connection with the Impugned Settlement Order; (ii) that this Hon ble Court be pleased to stay the effect and operation of the Impugned Settlement Order: (iii) that this Hon ble Court be pleased to stay the 2022 Postal Ballot Notice. 8. The petitioners contention of these documents not being made available to the petitioners was urged by Mr. Gaurav Joshi, learned Senior Counsel appearing for the petitioners in Writ Petition No. 447 of 2023 during the course of his arguments on 19 October 2023, which was supported by Mr. Seervai, learned Senior Counsel appearing for the petitioners in Writ Petition No.5 30 of 2023. We have heard the learned counsel for the parties on such issue on 19 October 2023 when the arguments on the same remained part heard. In our order passed on the even day, we recorded the fair stand as taken by the SEBI on 19 October 2023 of agreeing to produce the documents, if so directed by the Court. We had accordingly passed the following order:- 1. At the midst of the hearing of the present proceedings, we have con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Seervai for the petitioners have argued that non supply of the documents by the SEBI as set out in prayer clause (g) of the petition has a material bearing on the issue which falls for consideration in the present proceedings and more particularly, considering the case of the petitioner on the challenge, they have mounted to the impugned settlement order passed under the provisions of the 2018 Regulations. It is the petitioners contention that it would not be correct for the respondents not to provide/supply such documents to the petitioners, who are the shareholders of BNL. 11. On behalf of the petitioners, learned senior counsel have submitted that the settlement which is brought about by the BNL is a consequence of the complaint as made by the petitioners and received by the SEBI, on which an investigation was undertaken by the SEBI and thereafter, a show cause notice was issued by the SEBI inter alia to BNL and the majority shareholders, who, according to the petitioners, are controlling the BNL. It is contended that the show cause notice was replied, and considering the imputations as made, on the basis of an investigation undertaken by the SEBI, a proposal for settlement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ashish Kamat, the contentions as urged on behalf of the petitioners are being vehemently objected. Such objections are as follows:- (i) that the confidentiality clause being Regulation 29 of the 2018 Regulations would not permit SEBI to provide those documents. (ii) that so far, during the course of hearing of the present proceedings, the need for having such documents, was not pressed or urged, and at the fag end of the proceedings it ought not to be granted. This would also show that no prejudice was caused to the petitioners, as the absence of such documents would not perceive any prejudice to the petitioners. (iii) The petitioners are adversaries to the private respondents and hence, such documents can never be granted. The object and purpose of the confidentiality clause (Regulation 29) itself is to the effect that documents, which are part of the settlement proceedings, be not provided to the public. The petitioners case of a challenge to the Settlement order is a jurisdictional issue, hence, such issue ought to have been raised at the very first instance and/or at the beginning of the hearing. It is submitted that under the garb of challenging the decision mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entation made by the applicant under these regulations: Provided that this sub-regulation shall not apply where the settlement order is revoked or withdrawn under these regulations. Explanation . When any fact is discovered in consequence of information received from a person in pursuance of an application, so much of such information, whether it amounts to an admission or not, as relates distinctly to the fact thereby discovered, may be proved. (emphasis supplied) 18. We may observe that Regulation 29 forms part of the miscellaneous provisions as contained in Chapter XI of the 2018 Regulations, which would become applicable in the context of an application for settlement, which would be made by the persons against whom any specified proceedings have been initiated. Some of the relevant definitions as contained in the 2018 Regulations read thus:- Definitions . 2. (1) In these regulations, unless the context otherwise requires, the terms defined herein shall bear the meanings assigned to them below and their cognate expressions shall be construed accordingly, (a) Act means the Securities and Exchange Board of India Act, 1992 (15 of 1992 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , shall be deemed to be admitted by the applicant in respect of the proceedings proposed to be settled. 4. The applicant shall make one application for settlement of all the proceedings that have been initiated or may be initiated in respect of the same cause of action. 5. An application that is not complete in all respects or does not conform to the requirements of these regulations shall be returned to the applicant. 6. The applicant whose application has been returned under sub- regulation (5) may, within fifteen days from the date of communication from the Board, submit the complete and revised application that conforms to the requirements of these regulations: Provided that no further opportunity shall be given to the applicant to make an application in respect of the alleged default at the same stage of the proceedings, as indicated in Table I in Schedule-II. 7. Where the applicant is an association or a firm or a body corporate or a limited liability partnership, the application and undertakings and waivers shall be executed by the person in charge of, and responsible for the conduct of the business of such firm or association or body corporate and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aws. 5. Nothing contained in these regulations shall be construed to restrict the right of the Panel of Whole Time Members to consider or reject any application in respect of any specified proceeding without examination by the Internal Committee or the High Powered Advisory Committee. (emphasis supplied) 21. The form of application for settlement has been set out in Schedule I which contemplate several details which are required to be furnished. What is important is that such an application is required to be made on oath. It would be appropriate to note the contents of the form as contained in Schedule I of Regulation 3 which reads thus:- SCHEDULE-I (See regulation 3) Part-A FORM Application for settlement (To be filed only after conclusion of investigation, inspection, inquiry or audit, as the case may be) ________________________________________________________ (For Office use only) Date of receipt of the application: Application Registration Number: ________________________________________________________ ( Instructions : All particulars, including submission regarding details of loss caused to investors, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19. Submissions in respect of sub-regulations (2), (3) (4) of Regulation 5: 20. Terms of settlement proposed by the Applicant: (a) Monetary terms, with manner of calculation:- (b) Non-monetary terms, including manner of calculation of terms of disgorgement due:- 21. Original documents to be enclosed: (a) Undertakings and waivers (as per Format specified in Part C). (b) Authority letter/Board resolution. 22. List of other enclosures: (a) A copy of the notice to show cause/ summons/communication/other notices indicating the probable cause of action, if any, against which the settlement is sought; (b) Complete Annual Reports / other relevant financial details for thelast three financial years and the quarterly audited financial results of the current year; (c) A statement showing net worth of the applicant (only for those applicants who are required to comply with the net-worth requirements as specified by the Board or by the stock exchanges), gross annual income before tax, the amount of gross profit made/loss avoided, including the gross brokerage, fees, management/performance/transaction fee, carried interest, compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hes ettlement proceedings shall be excluded for computing the limitation period or laches, if any, for initiating or continuing or restoring any legal proceedings, if any, against me/us, and waive any objections in this regard. (3) The Securities and Exchange Board of India may enforce any claims against me/us arising from or/in relation to any violation of the settlement order passed pursuant to this application. (4) Nothing in the settlement order shall preclude any other person from pursuing any other legal remedy to which such person may be entitled against me/us as per law. (5) The settlement proposed by me/us does not limit or create any private rights or remedies for any person who is not a party to these proceedings, against me/us. (6) The settlement amount including legal costs, if any, shall be paid by me/us to the Board within the period stipulated by the Board. (7) The settlement order shall be construed and enforced in accordance with the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018, as amended from time to time. (8) I/We agree that subsequent to the passing of the settlement order, I/We shall not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussions concerning settlement of all or any part of the internal proceedings; and (g) any plea of limitation or laches for initiating or restoring of the proceedings, if the applicant violates the settlement order. (13) I/We undertake as a condition of settlement to not seek, directly or indirectly, any set-off, reimbursement by way of indemnification, insurance coverage or any other form of non-tax reimbursement. (Signature of the applicant with stamp and seal of the body corporate) Before me. Notary. (emphasis supplied) 22. The contents of the aforesaid form would indicate that the same is required to be filed only after conclusion of the investigation, inspection, inquiry or audit, as the case may be. There are several material details which are required to be furnished, the purpose and intent of which appears to be to ascertain as to whether a settlement when tested as per the regulations is at all acceptable. Some of the material details which are required to be furnished are found in paragraphs 15, 16, 17, 18 and 22 of the said form which we have underscored in the extract of the form, as set out hereinabove. Hence, we do not reiterate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bare reading and plain application, first and foremost, Regulation 29 cannot be read to apply to materials which are part of the SEBI s record prior to the commencement of the settlement proceedings. In the present case, such materials would be documents inter alia like the investigation report, show cause notice (with annexures), and the reply to the show cause notice. 27. The contents of Regulation 29 to the effect may not be released to the public is with a further rider that only if the same prejudices the Board and/or the applicant . These contents are quite, significant, by virtue of which Regulation 29 cannot be read as a blanket or a mandatory bar on non supply of documents and information. The provision itself is directory when the phrase is used as may not be released and on the further test to be applied of prejudice to the Board and/or the applicant. Thus, information can be released when there is no prejudice to the Board or to the applicant. There cannot be two opinions that the test of prejudice is the test which is required to be pleaded and ascertained on the facts as may be involved in the case, and only after considering the degree of prejudice and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught not to have raised such plea on the documents at the midst of the final hearing, as this itself would show that no prejudice was caused to the petitioners, in our opinion, is certainly not a tenable contention, for more than one reason. Firstly on such case the petitioners have made a specific interim prayer as noted by us above. They have also supported such prayer, by pleading a case of a serious prejudice being caused to them in the capacity of being the shareholders of BNL. It is also not the case that they had in any manner given up their case on their necessity and entitlement to have such documents. In any event, the petition is being heard finally at the admission stage, which would not mean that a situation is brought about, that the specific contentions on documents, as urged by the petitioners and subject matter of specific prayers would stand given up by the petitioners much less on the law would understand. Moreover, as observed above, the case of the petitioners is that the very basis of the SEBI undertaking investigation on the complaints as made by the petitioners of BNL violating the rules, regulations and norms as prescribed by SEBI, being violated by BNL and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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